Income Taxation and the Diversity of Consumer Goods: A Political Economy Approach

Renaud Bourlès (1) , Michael Dorsch (2) , Paul Maarek (3)

1 AMSE - Aix-Marseille Sciences Economiques
2 CEU - Central European University [Budapest, Hongrie]
3 LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée

After‐tax income inequality has risen since the mid‐1990s, as increases in market income inequality have not been offset by greater fiscal redistribution. We argue that the substantial increase in the diversity of consumer goods has mitigated mounting political pressures for redistribution. Within a probabilistic voting framework, we demonstrate that if the share of diversified goods in the consumption bundle increases sufficiently with income, then an increase in goods diversity can reduce the political equilibrium tax rate. Focusing on OECD countries, we find empirical support for both the model's micro‐political foundations and the implied relation between goods diversity and fiscal policy outcomes.

Keywords: Probabilistic voting; Variety; Non-homothetic preferences; Panel data; Redistribution

Domains: Humanities and Social Sciences; Economics and Finance

Renaud Bourlès, Michael Dorsch, Paul Maarek. Income Taxation and the Diversity of Consumer Goods: A Political Economy Approach. Scandinavian Journal of Economics, 2019, 121 (3), pp.960-993. ⟨10.1111/sjoe.12307⟩. ⟨hal-02474671⟩