Public Choice

, Volume 146, Issue 1–2, pp 185–203 | Cite as

How much income redistribution? An explanation based on vote-buying and corruption

Article
  • 280 Downloads

Abstract

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.

Tax rates Vote-buying Lobbying Government corruption 

JEL Classification

D72 D73 H2 H3 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Acemoglu, D., Ticchi, D., & Vindigni, A. (2007). Emergence and persistence of inefficient states. NBER Working Paper no. 12748. Google Scholar
  2. Alesina, A., & Angeletos, G. (2005). Fairness and redistribution. American Economic Review, 95, 960–980. CrossRefGoogle Scholar
  3. Alesina, A., & La Ferrara, E. (2005). Preferences for redistribution in the land of opportunities. Journal of Public Economics, 89, 897–931. CrossRefGoogle Scholar
  4. Atkinson, A. B. (2004). Income tax and top incomes over the twentieth century. Hacienda Pública Española, 168, 123–141. Google Scholar
  5. Baland, J.-M., & Robinson, J. (2008). Land and power: theory and evidence from Chile. American Economic Review, 98, 1737–1765. CrossRefGoogle Scholar
  6. Barro, J. (1973). The control of politicians: an economic model. Public Choice, 14, 19–42. CrossRefGoogle Scholar
  7. Benabou, R., & Ok, E. A. (2001). Social mobility and the demand for redistribution: the POUM hypothesis. The Quarterly Journal of Economics, 116, 447–487. CrossRefGoogle Scholar
  8. Besley, T., & Coate, S. (2001). Lobbying and welfare in a representative democracy. Review of Economic Studies, 68, 67–82. CrossRefGoogle Scholar
  9. Bockstette, V., Chanda, A., & Putterman, L. (2002). States and markets: the advantage of an early start. Journal of Economic Growth, 7, 347–369. CrossRefGoogle Scholar
  10. Breyer, F., & Ursprung, H. (1998). Are the rich too rich to be expropriated? Economic power and the feasibility of constitutional limits to redistribution. Public Choice, 97, 135–156. CrossRefGoogle Scholar
  11. Brennan, G., & Buchanan, J. (1980). The power to tax: analytical foundations of a fiscal constitution. Cambridge: Cambridge University Press. Google Scholar
  12. Buchanan, J., & Lee, D. (1986). Vote buying in a stylized setting. Public Choice, 49, 3–15. CrossRefGoogle Scholar
  13. Buchanan, J., & Tullock, G. (1962). The calculus of consent: logical foundations of constitutional democracy. Ann Arbor: University of Michigan Press. Google Scholar
  14. Docquier, F., & Tarbalouti, E. (2001). Bribing votes: a new explanation to the ‘inequality-redistribution’ puzzle in LDC’s. Public Choice, 108, 259–272. CrossRefGoogle Scholar
  15. Easterly, W., & Levine, R. (2003). Tropics, germs, and crops: how endowments influence economic development. Journal of Monetary Economics, 50, 3–39. CrossRefGoogle Scholar
  16. Easterly, W., & Rebelo, S. (1993). Fiscal policy and economic growth: an empirical investigation. Journal of Monetary Economics, 32, 417–458. CrossRefGoogle Scholar
  17. Fernandez, R., & Levy, G. (2008). Diversity and redistribution. Journal of Public Economics, 92, 925–943. CrossRefGoogle Scholar
  18. Friedman, E., Johnson, S., Kaufmann, D., & Zoido-Lobaton, P. (2000). Dodging the grabbing hand: the determinants of unofficial activity in 69 countries. Journal of Public Economics, 76, 459–493. CrossRefGoogle Scholar
  19. Grossman, G., & Helpman, E. (1996). Electoral competition and special interest politics. Review of Economic Studies, 63, 265–286. CrossRefGoogle Scholar
  20. Gwartney, J., & Lawson, R. (2005). In Economic freedom of the world: 2005 annual report. Vancouver: The Fraser Institute. Google Scholar
  21. Hall, R., & Jones, C. (1999). Why do some countries produce so much more output per worker than others? The Quarterly Journal of Economics, 114, 83–116. CrossRefGoogle Scholar
  22. Hasen, R. (2000). Vote buying. California Law Review, 88, 1323–1371. CrossRefGoogle Scholar
  23. Harms, P., & Zink, S. (2003). Eating the rich vs. feeding the poor: borrowing constraints and the reluctance to redistribute. Public Choice, 116, 351–366. CrossRefGoogle Scholar
  24. Kaufmann, D., Kraay, A., & Mastruzzi, M. (2005). Governance matters IV: governance indicators for 1996–2004. World Bank. Google Scholar
  25. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1999). The quality of government. The Journal of Law, Economics, and Organization, 15, 222–279. CrossRefGoogle Scholar
  26. Levy, G. (2005). The politics of public provision of education. The Quarterly Journal of Economics, 120, 1507–1534. CrossRefGoogle Scholar
  27. Lindbeck, A., & Weibull, J. (1987). Balanced-budget redistribution as the outcome of political competition. Public Choice, 52, 273–297. CrossRefGoogle Scholar
  28. Mauro, P. (1995). Corruption and growth. The Quarterly Journal of Economics, 110, 681–712. CrossRefGoogle Scholar
  29. Meltzer, A. H., & Richard, S. (1981). A rational theory of the size of government. Journal of Political Economy, 89, 914–927. CrossRefGoogle Scholar
  30. Merrifield, J. (2000). State government expenditure determinants and tax revenue determinants revisited. Public Choice, 102, 25–50. CrossRefGoogle Scholar
  31. Olken, B. A. (2006). Corruption and the costs of redistribution: micro evidence from Indonesia. Journal of Public Economics, 90, 853–870. CrossRefGoogle Scholar
  32. Pande, R., & Udry, C. (2005). Institutions and development: a view from below. Yale University Working Paper. Google Scholar
  33. Persson, T., & Tabellini, G. (1999). The size and scope of government: comparative politics with rational politicians. 1998 Alfred Marshall Lecture. European Economic Review, 43, 699–735. CrossRefGoogle Scholar
  34. Piketty, T. (1995). Social mobility and redistributive politics. The Quarterly Journal of Economics, 110, 551–584. CrossRefGoogle Scholar
  35. Piketty, T. (2003). Income inequality in France, 1901–1998. Journal of Political Economy, 111, 1004–1042. CrossRefGoogle Scholar
  36. Piketty, T., & Qian, Q. (2009). Income inequality and progressive income taxation in China and India, 1986–2015. American Economic Journal: Applied Economics, 1, 53–63. CrossRefGoogle Scholar
  37. Piketty, T., & Saez, E. (2006). The evolution of top incomes: a historical and international perspective. American Economic Review, 96, 200–205. CrossRefGoogle Scholar
  38. Ravallion, M., & Lokshin, M. (2000). Who wants to redistribute?: The tunnel effect in 1990s Russia. Journal of Public Economics, 76, 87–104. CrossRefGoogle Scholar
  39. Roberts, K. (1977). Voting over income tax schedules. Journal of Public Economics, 8, 329–340. CrossRefGoogle Scholar
  40. Romer, T. (1975). Individual welfare, majority voting and the properties of a linear income tax. Journal of Public Economics, 7, 163–168. CrossRefGoogle Scholar
  41. Sanyal, A., Gang, I., & Goswami, O. (2000). Corruption, tax evasion and the Laffer curve. Public Choice, 105, 61–78. CrossRefGoogle Scholar
  42. Svensson, J. (2005). Eight questions about corruption. Journal of Economic Perspectives, 19, 19–42. CrossRefGoogle Scholar
  43. Traxler, C. (2009). Voting over taxes; the case of tax evasion. Public Choice, 140, 43–58. CrossRefGoogle Scholar
  44. World Economic Forum (2004). The global competitiveness report 2004–2005. Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Department of Public FinanceUniversity of InnsbruckInnsbruckAustria

Personalised recommendations