DP13059 Politically feasible reforms of non-linear tax systems

Author(s): Felix Bierbrauer, Pierre Boyer
Publication Date: July 2018
Keyword(s): Non-linear income taxation, optimal taxation, political economy, Tax Reforms
JEL(s): C72, D72, D82, H21
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13059

We present a conceptual framework for the analysis of politically feasible tax reforms. First, we prove a median voter theorem for monotonic reforms of non-linear tax systems. This yields a characterization of reforms that are preferred by a majority of individuals over the status quo and hence politically feasible. Second, we show that every Pareto-efficient tax system is such that moving towards lower tax rates for below-median incomes and towards higher rates for above median incomes is politically feasible. Third, we develop a method for diagnosing whether a given tax system admits reforms that are politically feasible and/or welfare-improving.