Working Paper: NBER ID: w26654
Authors: Antoine Camous; Russell Cooper
Abstract: This paper studies the determination of income taxes in a dynamic setting with human capital accumulation. The goal is to understand the factors that support an outcome without complete redistribution, given a majority of relatively poor agents. In the analysis, the internal dynamics of income are not sufficient to prevent complete redistribution under majority rule without commitment. However, a political influence game limits the support for expropriatory taxation and preserves incentives. In some cases, the outcome of the game corresponds with the optimal allocation under commitment.
Keywords: activism; electoral competition; commitment; redistribution; human capital
JEL Codes: D72; D74; E62; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| absence of commitment (J22) | majority voting (D79) |
| majority voting (D79) | full redistribution (D39) |
| full redistribution (D39) | elimination of human capital investment (J24) |
| political activism (D72) | reduced support for high taxes (H29) |
| reduced support for high taxes (H29) | preservation of dynamic incentives (O31) |
| activism by income groups (F61) | lower tax rates (H29) |
| lower tax rates (H29) | preserved incentives for human capital accumulation (J24) |
| political activism (D72) | tax policy outcomes (H29) |