A politico-economic model of public expenditure and income taxation

Abstract

This paper contributes to the literature on majority voting over fiscal policies. We depart from the standard model in two dimensions. First, besides redistributing income, the government uses the net tax revenue to finance the provision of goods and services that become in-kind transfers to the citizens. By deciding on the composition of this expenditure (education, health, law-and-order, etc.), the government chooses the allocation of the benefits to the different income segments. This choice is a fundamental ingredient of fiscal policy. Second, we tackle the problem of choosing the income tax function and the composition of public expenditure by assuming that the political process selects one of these issues as the salient one. Political controversy and vote focus on this issue exclusively. The other dimension is determined in a way so as to minimize objections (obtain consensus) among the voters. We analyze the case where the salient policy is the composition of public expenditure. We show that for each voted expenditure policy, there is a unique income tax function that attains consensus. The political process we model yields that the progressiveness of the income tax schedule depends on income inequality interacted with the elasticity of substitution of the goods provided in the market and those publicly provided. This relationship is confirmed in our empirical test.

Determinants of Carbon Tax Implementation

“…Therefore, business performance and regulations make a single entity in the taxation course. This condition supports the business management creation based on tax calculation process on the business results achieved, both economically (profits) and also the resulting environmental impacts (Cnossen, 2018;Bauer et.al, 2018;Mayoral & Esteban, 2019;Kuralbayeva, 2019;Alpaslan et.al, 2021).…”

“…Various policies aimed at expanding the tax base, namely based on the ease of calculating, paying and reporting taxes, are expected to increase awareness and compliance with paying taxes. Tax payments are positively correlated with the development of the economic environment as an effort to carry out the tax function (Prasetyo, 2018;Mayoral & Esteban, 2019;Varotsis & Katerelos, 2020). This achievement provides a positive correlation between the tax base imposition policy and Taxpayer compliance.…”

“…The request relates to Taxpayer's voluntary understanding to carry out the policies that have been set. Tax policy has a positive influence on Taxpayers to carry out the plans that have been set (Prasetyo, 2018(Prasetyo, , 2016Mayoral & Esteban, 2019;Kate & Milionis, 2019;Famami & Norsain, 2019;Díaz-Giménez & Pijoan-Mas, 2019;Anjanni et.al 2019;Górecki & Letki, 2021).…”

“…The implementation of tax regulation policy according to Jacobs (2013), Echevarría (2015), Mayoral & Esteban (2019), Darmawati & Zelmiyanti (2021) and Alpaslan et.al ( 2021) is based on the economic development of Taxpayer in a fair manner. This condition encourages sustainable business development existence of economic activity.…”

“…This has a positive effect that wider the tax base, which in turn will increase the business scale of Taxpayers, meaning that tax regulations determination is correlated with business size. The business size makes basis for taxation policies issued to be JRAK 12.1 imposed in accordance with the activities carried out (Alink & Kommer, 2016;Kate & Milionis, 2019;Mayoral & Esteban, 2019;Bastani et.al, 2020;Wardani & Susilowati, 2020;Górecki & Letki, 2021;Sologon et.al, 2021).…”