How much income redistribution? An explanation based on vote-buying and corruption
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This paper studies how income tax rates are determined and how they are related to government corruption in the form of fund capture. A model is presented where rich voters can block redistribution by buying the votes of some poor voters. In equilibrium there is only limited redistribution and income tax rates are a negative function of government corruption. When rich voters can bribe the government, an additional equilibrium with zero taxation is possible. The link between corruption and tax rates is tested using cross country data; the empirical evidence is fully consistent with the predictions of the model.
JEL ClassificationD72 D73 H2 H3
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