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American Economic Journal: Microeconomics: Vol. 4 No. 1 (February 2012)

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Competitive Nonlinear Taxation and Constitutional Choice

Article Citation

Morelli, Massimo, Huanxing Yang, and Lixin Ye. 2012. "Competitive Nonlinear Taxation and Constitutional Choice." American Economic Journal: Microeconomics, 4(1): 142-75.

DOI: 10.1257/mic.4.1.142

Abstract

In an economy where agents have different productivities and mobility, we compare a unified nonlinear optimal taxation with the equilibrium taxation that would be chosen by two competing tax authorities if the same economy were divided into two states. The overall level of progressivity and redistribution is unambiguously lower under competitive taxation; the "rich" are always in favor of competing authorities, whereas the "poor" are always in favor of unified taxation; the preferences of the middle class depend on the initial conditions in terms of the distribution of abilities, the relative power of the various classes, and mobility costs. (JEL D72, H21, H23, H24)

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Authors

Morelli, Massimo (Columbia U and European U Institute)
Yang, Huanxing (OH State U)
Ye, Lixin (OH State U)

JEL Classifications

D72: Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
H21: Taxation and Subsidies: Efficiency; Optimal Taxation
H23: Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H24: Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes

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