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Inequality and the composition of taxes

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  • Andrew Pickering
  • Sheraz Rajput
Abstract
This paper analyzes the political economics of the composition of taxes. Taxes may be levied on income, or on expenditure, and the median voter is pivotal in the theoretical framework analyzed. As in Meltzer and Richard (1981) income taxes increase with inequality. Conversely expenditure taxes first increase and then decrease with increasing inequality. The extent to which taxes are levied on income relative to expenditure unambiguously rises with inequality. Cross-country data exhibit a robust positive correlation between the extent to which taxes are levied on income relative to expenditure, and inequality. Consistent with the theory this relationship holds most significantly in stronger democracies.

Suggested Citation

  • Andrew Pickering & Sheraz Rajput, 2015. "Inequality and the composition of taxes," Discussion Papers 15/04, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:15/04
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    Cited by:

    1. Rajput, Sheraz & Qureshi, Fiza & Aziz, Tariq, 2021. "Demographic Changes and Direct Tax Dynamics in OECD and Non-OECD Markets: A Revisit," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 28(1).
    2. Luo, Weijie, 2019. "Demography and the composition of taxes: Evidence from international panel data," Economics Letters, Elsevier, vol. 183(C), pages 1-1.
    3. Abdramane Camara, 2023. "The Effect of Foreign Direct Investment on Tax Revenue," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 65(1), pages 168-190, March.
    4. Beatrice D. Simo-Kengne, 2023. "Ageing and tax composition in South Africa: a spatial analysis," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(1), pages 905-917, February.
    5. Catalina Granda-Carvajal & Danny García-Callejas, 2023. "Informality, tax policy and the business cycle: exploring the links," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(1), pages 114-166, February.
    6. Abdramane Camara, 2019. "The effect of foreign direct investment on tax revenue in developing countries," Working Papers hal-03188025, HAL.

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    More about this item

    Keywords

    tax structure; inequality;

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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