Working Paper: NBER ID: w21231
Authors: Stephen Calabrese; Dennis Epple; Richard Romano
Abstract: We examine majority choice of tax instruments in single- and multi-jurisdictional economies with heterogeneous households. In our framework majority voting equilibrium exists despite the multidimensional policy choice set. We identify five competing incentives that influence choice of tax instruments. Equilibria generally entail a mixture of tax types. With multiple jurisdictions, strong reliance on head taxation in rich communities arises to deter poorer households from immigrating. Mobility fundamentally affects the equilibrium tax system with redistribution incentives dominating choice of instruments when mobility is limited. Limiting or eliminating head taxation fundamentally alters stratification, public good provision levels, and tax systems.
Keywords: tax systems; majority choice; multijurisdictional economies; public goods; redistribution
JEL Codes: H21; H71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Limited mobility (J62) | preference for redistribution through income and property taxes (H23) |
| Permitted mobility (J62) | reliance on head taxes in wealthier communities (H79) |
| Head taxes (H29) | deter poorer households from moving in (R21) |
| Wealthier communities (I39) | confer positive benefits to the community (H43) |
| Equilibrium tax structure (H29) | alters based on level of mobility (J62) |
| Presence of multiple tax instruments (H20) | complex equilibrium (D50) |