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Social insurance and taxation under sequential majority voting and utilitarian regimes

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  • Rao Aiyagari, S.
  • Peled, Dan
Abstract
It is often argued that with a positively skewed income distribution (median less than mean) majority voting would result in higher tax rates than maximizing average welfare and, hence, lower aggregate savings. We reexamine this view in a capital accumulation model, in which distorting redistributive taxes provide insurance against idiosyncratic shocks and income distributions evolve endogenously. We find small differences of either sign between the tax rates set by a majority voting and a utilitarian government, for reasonable parametric specifications, despite the fact that model simulations produce positively skewed distributions of total income across agents.
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  • Rao Aiyagari, S. & Peled, Dan, 1995. "Social insurance and taxation under sequential majority voting and utilitarian regimes," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1511-1528, November.
    • Handle: RePEc:eee:dyncon:v:19:y:1995:i:8:p:1511-1528
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    4. Daniel R. Carroll & Andre Luduvice & Eric Young, 2023. "Optimal Fiscal Reform with Many Taxes," Working Papers 23-07R, Federal Reserve Bank of Cleveland, revised 28 Aug 2024.
    5. Daniel Carroll & Jim Dolmas & Eric Young, 2021. "The Politics of Flat Taxes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 174-201, January.
    6. Floden, Martin, 2001. "The effectiveness of government debt and transfers as insurance," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 81-108, August.
    7. Daniel R. Carroll & Jim Dolmas & Eric Young, 2015. "Majority Voting: A Quantitative Investigation," Working Papers (Old Series) 1442, Federal Reserve Bank of Cleveland.
    8. Pecoraro, Brandon, 2017. "Why don't voters ‘put the Gini back in the bottle'? Inequality and economic preferences for redistribution," European Economic Review, Elsevier, vol. 93(C), pages 152-172.
    9. Gustavo de Souza, 2022. "On Political and Economic Determinants of Redistribution: Economic Gains, Ideological Gains, or Institutions?," Working Paper Series WP 2022-47, Federal Reserve Bank of Chicago.

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