| This dissertation studies the relation between income taxation and democracy from a positive political economy approach. The first essay, a joint work with Oriol Carbonell-Nicolau, develops a political economy model that is consistent with the fact that democracies have a preference for increasing marginal tax rates on income. We present a model in which there is an exogenous set of political parties with preferences over the set of admissible tax schedules. Each party decides whether or not to present a candidate for election. The elected candidate implements one of her preferred tax policies. Our main results provide conditions under which a Strong Nash Equilibrium exists, and a tax schedule with increasing marginal tax rates is implemented in some Nash Equilibria and in any Strong Nash Equilibrium.; The second essay studies the “popular support for progressive taxation theorem” (Maruhenda and Ortuno-Ortin, 1995). This theorem provides an important formalization of the intuition that a majority of relatively poor voters over rich ones leads to progressive income taxation. Yet, the theorem does not provide an equilibrium outcome, is obtained for an overly restrictive domain of tax schedules, and ignores incentive effects of income taxation. This chapter shows that none of these assumptions of the theorem can be relaxed completely.; The third essay develops a positive theory of taxation in a federation of states. In a federal system, with overlapping income taxation, total productivity dispersion between the states determines the federal tax rate. In fact, there exists a positive relation between the productivity dispersion and the federal tax rate, even if the income of the decisive voter is above the mean income. When individuals' income is endogenous, because of incentive considerations, the higher the implemented federal tax rate is, the lower the resulting state tax rate will be, even if a relatively poor individual chooses this tax. Empirical evidence obtained from a new data set on nonlinear tax schedules at the state level supports the hypothesis of this study. |
