Majority Choice of Tax Systems in Single- and Multi-Jurisdictional Economies

Abstract

We examine majority choice of tax instruments in single- and multi-jurisdictional economies with heterogeneous households. In our framework majority voting equilibrium exists despite the multidimensional policy choice set. We identify five competing incentives that influence choice of tax instruments. Equilibria generally entail a mixture of tax types. With multiple jurisdictions, strong reliance on head taxation in rich communities arises to deter poorer households from immigrating. Mobility fundamentally affects the equilibrium tax system with redistribution incentives dominating choice of instruments when mobility is limited. Limiting or eliminating head taxation fundamentally alters stratification, public good provision levels, and tax systems.