Working Paper: CEPR ID: DP13059
Authors: Felix Bierbrauer; Pierre C Boyer
Abstract: We present a conceptual framework for the analysis of politically feasible tax reforms. First, we prove a median voter theorem for monotonic reforms of non-linear tax systems. This yields a characterization of reforms that are preferred by a majority of individuals over the status quo and hence politically feasible. Second, we show that every Pareto-efficient tax system is such that moving towards lower tax rates for below-median incomes and towards higher rates for above median incomes is politically feasible. Third, we develop a method for diagnosing whether a given tax system admits reforms that are politically feasible and/or welfare-improving
Keywords: nonlinear income taxation; tax reforms; political economy; optimal taxation
JEL Codes: C72; D72; D82; H21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monotonic reform supported by the median voter (D72) | political feasibility (D72) |
| Pareto-efficient tax system allows for politically feasible reforms (H21) | political feasibility (D72) |
| lowering tax rates for below-median incomes (H29) | political feasibility (D72) |
| raising tax rates for above-median incomes (H29) | political feasibility (D72) |
| reforms yielding benefits for the median voter (D72) | majority support (D72) |