SSE/EFI Working Paper Series in Economics and Finance
No 530:
The political economics of not paying taxes
Jesper Roine ()
Abstract: This paper considers redistributive as well as political
consequences of tax avoidance. When investing in tax avoidance is possible,
the official tax rate does not necessarily correspond to what individuals
actually pay in taxes. This affects both redistributive outcomes as well as
individual's political attitudes towards taxation. Depending on the
avoidance technology different political equilibria emerge. When the tax
avoidance possibilities are limited, the classical conflict between rich
and poor is sustained. If the tax avoidance technology is more effective,
however, the equilibrium outcome can change to a situation characterized by
a coalition of poor and the very richest favoring a higher tax rate. When
comparing the model's predictions with data on income inequality and
evidence of avoidance activity it comes surprisingly close to actual
observations.
Keywords: Political equilibrium; Redistribution; Tax avoidance; Non-median voter equilibrium; (follow links to similar papers)
JEL-Codes: D72; H20; H24; (follow links to similar papers)
34 pages, April 15, 2003
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