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Redistributive taxation and public expenditures

Bandyopadhyay, Sanghamitra and Esteban, Joan (2007) Redistributive taxation and public expenditures. DARP (95). Suntory and Toyota International Centres for Economics and Related Disciplines, London, UK.

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We introduce a model of redistributive income taxation and public expenditure. Besides redistributing personal income by means of taxes and transfers, the government supplies goods and services. The government chooses the tax schedule that is found acceptable by the largest share possible of the population. We show that there is a unique income tax schedule that is universally acceptable. The progressivity of the income tax is shown to depend on the composition of the public expenditure and on the substitutability between the goods and services supplied by the government and the consumption goods privately obtained through the market. We test the empirical implications of the model. Specifically, we use OECD data to observe the relationship between marginal tax rates and the distribution over the taxpayers of the benefits produced by the specific composition of the government expenditure in the provision of goods and services. We confirm that for lower elasticities of substitution between public and private goods, there is a negative relationship between marginal tax rates and pro-taxpayerbias, and for higher elasiticities, there is a positive relationship.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2007 Sanghamitra Bandyopadhyay and Joan Esteban
Divisions: STICERD
Subjects: H Social Sciences > HJ Public Finance
Date Deposited: 05 Jul 2008 12:20
Last Modified: 15 Sep 2023 23:11

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