Redistributive Tax Policies Research Articles

The Role of Preference Formation and Perception in Unequal Representation. Combined Evidence From Elite Interviews and Focus Groups in Germany

Unequal representation can result from politicians’ biased perception of public opinion. Existing research has focused on the numerical accuracy with which politicians estimate preferences distributions in surveys. This method ignores politicians’ broader assumptions about public preferences; e.g. regarding their crystallization, salience, malleability, and measurability in surveys. We address these assumptions in a novel two-stage research design using redistributive tax policy in Germany as a case. Interviews with parliamentarians show that voters are perceived as uninformed, disinterested, and susceptible to anti-tax mobilization by business representatives. Support for taxing the rich in polls is dismissed as superficial and irrelevant for political behavior. In a second step, we verify these assumptions in twelve focus groups with high- or low-educated citizens. They largely confirm the assumed indifference and anti-tax attitudes. An education gap in tax preferences cannot be identified. Support expressed in previous surveys tends to disappear in conversations, which aligns with politicians’ experiences.

Making the rich pay? Social democracy and wealth taxation in Europe in the aftermath of the great financial crisis

AbstractWhy is taxing the rich so difficult despite rising inequality and public support for progressive taxation? Recent research has mostly focused on the ‘demand side’ of electoral tax politics, showing that economic crises can increase public demands for progressive taxation in contemporary societies. Complementing this research, we focus on the political ‘supply side’, investigating the conditions under which social democratic parties take up these calls and translate them into policy. Studying wealth taxation in the course of the global financial crisis, we argue that whether parties pushed for taxing wealth crucially depended on intra-party struggles between the (office-seeking) leadership and the (policy-seeking) left wing. Only if the leadership became convinced that redistributive tax policy was electorally promising, did the social democratic parties fight for implementing wealth taxes. We evaluate this theoretical proposition in a comparative analysis of wealth tax policies in Austria, Germany and Spain in 2008–2015.

Inequality and the Partisan Political Economy

ABSTRACT Inequality is shown to shape public policies with significant redistributive ramifications. As a measure of the poor median voter's dissatisfaction with the economic status quo, some scholars argue that it is an indicator of redistributive pressure. Yet for others, it is a proxy for the power asymmetry between the rich and the poor in policymaking. How does inequality affect redistributive tax policies? We offer an explanation based on policymaker ideology. We show that when inequality rises, left-leaning policymakers craft more redistributive policies while right-leaning policymakers suppress them. Using the top income shares for inequality, we analyse two datasets to corroborate our argument: (1) cross-national inheritance and income tax data; and (2) U.S. Senate votes on redistributive tax bills.

Viewing equality as a loss: How highlighting policy costs and benefits influences attitudes

As economic and political inequality has increased in recent decades, scholars and policymakers have turned their attention to the American public’s reaction and response to this phenomenon. While most opinion polls demonstrate Americans general dislike of both economic and political inequality, there have been few implementations of policy that would reverse the trend of rising economic inequality or the outsized role that the wealthy have over policy. Moreover, redistributive tax policies put to direct vote at the state level have generally not fared well. Under what conditions might Americans be more likely to support policy that increases political equality by reducing unequal influence? Why might Americans vote against or oppose redistributive tax policies even though they object to rising economic inequality? We conduct two survey experiments highlighting costs and benefits of inequality reducing policies. Using data from the CCES and Amazon Mechanical Turk, we find that respondents can shift their support for inequality reducing policy in response to costs yet rarely change opinions when exposed to potential benefits. Our findings suggest individuals can be swayed more by messages highlighting the costliness of redistributive tax policy rather than the potential benefits, suggesting loss aversion may be one explanation for why specific redistributive tax policies can be rejected.

Social Capital, the Quality of Social Networks and Redistribution Preferences: Evidence from the International Social Survey Programme

Social capital can be a useful asset in the labor market. Individuals who have more or better-quality connections in their social networks have an easier time finding employment. Since they face a lower probability of unemployment, one might expect them to express less support for redistributive tax policies. Using survey data from 20 advanced industrialized countries included in the 2006 Role of Government module of the International Social Survey Programme (ISSP), I find some evidence that individuals with better-quality social networks tend to oppose increasing taxes on the rich and lowering taxes on the poor, and that they believe the government ought to be responsible for providing jobs to those who want them, and for ensuring a decent living standard for the unemployed. At the same time, I find that higher social network quality does not appear to correlate with an individual’s belief that the government ought to reduce income differences, or increase spending on unemployment benefits. The social network quality measures do not, however, appear to increase the explanatory power of regression models significantly, indicating that any implied effects are fairly tenuous.

Income Inequality and Wealth Concentration in the Recent Crisis

ABSTRACTThis article shows that the increase of income inequality and global wealth concentration was an important driver for the financial and Eurozone crisis. The high levels of income inequality resulted in balance of payment imbalances and growing debt levels. Rising wealth concentration contributed to the crisis because the increasing asset demand from the rich played a key role in the growth of the structured credit market and enabled poor and middle‐income households to accumulate increasing amounts of debt. This analysis thereby puts both income and wealth inequality at the epicentre of the recent crisis, and as crucial for social scientists analysing the causes of the crisis. The authors’ findings suggest that the policy response to the crisis should not be limited to financial regulation but must involve policies to address inequality by increasing the bargaining power of labour as well as redistributive tax policies.

Toward a Political History of Capital?

Abstract The interaction between economic analysis and political action is one of the major issues raised by Capital in the Twenty-First Century and by any work of political economy. However, the way this interaction works and changes over time is not always clear in Thomas Piketty’s book. This critical review, informed by history and political science, aims to open up three areas of discussion. Are redistributive tax policies a mere accident, produced by the chaotic history of the twentieth century, and, if so, what might their future be? On what grounds could capitalism’s tendency to create inequality be regulated in the absence of any alternative system? Finally, can deliberative democracy offer any solution, or has it already been profoundly weakened by the very economic processes that Piketty’s brings to the fore in his book? A political history of capital seems more essential than ever.

Process over outcome: How perceptions of procedural fairness influence conservative support for redistributive taxes

Though majorities of Americans express support for redistributive tax policies as a cure for income inequality in the United States, this general support tends to dissipate when the public evaluates their support for specific proposals. The dominant explanations emphasize elite behavior and the disconnect between American values and political representation. An alternative view is that this counter-intuitive finding is entirely consistent with individual values. Some people place higher priority on policy processes than policy outcomes. This paper demonstrates that conservatives think about redistributive tax policy differently than liberals. Conservative support (opposition) for redistributive taxes is based on evaluations of the fairness of processes of government that lead to economic inequality. When conservatives believe that these processes are not fair, they are very supportive of wealth redistribution as a cure for economic inequality, whereas liberal support for wealth redistribution is more outcome-dependent.

The size and shape of government: preferences over redistributive tax policy

Why do some people support government redistribution more than others? This article addresses this question with reference to attitudes towards redistributive tax policy. In doing so, it identifies an important distinction between preferences over the level of taxation and preferences over its structure. Using individual-level survey data from 17 advanced industrial countries, I find ‘decoupling’ of pro-redistributive attitudes over the size versus the shape of government. The modal respondent prefers higher progressivity (more redistribution) but lower tax levels (less redistribution). Further, this decoupling varies across countries: preferences over tax levels have a greater effect on progressivity preferences in less progressive tax systems. I examine how theories of redistribution preferences help understand this disconnect, and show that income and risk affect progressivity preferences as they do attitudes towards redistribution. In contrast, trust affects preferences over tax levels in the same way as it affects redistribution preferences.

Wanting What Is Fair: How Party Cues and Information About Income Inequality Affect Public Support for Taxes

Income inequality has risen dramatically in the United States, with potentially negative social, economic, and political consequences. Governments can use redistributive tax policies to combat inequality, but doing so requires public support. When will voters support redistributive tax policies? We address this question by conducting survey experiments where citizens express opinions about tax policies in a real-world context. We manipulate whether they receive party cues, information about rising income inequality, both, or neither type of information. We find that when citizens are given information about income inequality, they connect it to their views on redistributive tax policies. We also find that inequality information can induce Republicans to support a tax increase that their party opposes. These results challenge the prominent view of citizens as too ignorant to connect information about inequality to specific taxes. They also suggest that efforts to inform the electorate about inequality can influence tax policy opinions.

Rescaling White Space in Post‐apartheid Johannesburg

AbstractThis paper traces three political mobilizations in the wealthy suburbs of Johannesburg: a boycott of redistributive tax policies, the creation of gated communities and residents’ associations, and the demand for residential city improvement districts (CIDs). I argue that state rescaling and networked governance are constituted through struggles over governmental power. I also argue for more attention to race in the political economy of scale. Struggles over the scalar, networked, and territorial dimensions of governance are constitutive moments in the shifting articulation of race, class, and space. An analysis of articulation highlights the role of territory, identity and imagination in the production of space, demonstrates that neoliberal forms of networked governance are products of struggle, and reiterates the feminist argument that governmental interventions are about more than just capital accumulation.

Redistribution and market efficiency: An experimental study

We study the interaction between competitive markets and income redistribution that reallocates unequal pre-tax market incomes away from the rich to the poor majority. In one setup, participants earn their income by trading in a double auction (DA) with exogenous zero or full redistribution. In another setup, after trading, they vote on redistributive tax policies in a majoritarian election with two competing candidates. This results in virtually full redistribution, even when participants have the opportunity to influence taxes by transferring money to the candidates. We find that the high redistribution reduces trading efficiency, but not as much as predicted if market participants trade randomly. This is because, rather than capitulating to the much lower trading incentives, many participants respond to redistribution by asking and bidding more conservatively in the DA, and in this way help to prevent further efficiency losses.

Political Quid Pro Quo Agreements: An Experimental Study

We experimentally study the common wisdom that money buys political influence. In the game, one special interest (i.e., a corporate firm) has the opportunity to influence redistributive tax policies in her favor by transferring money to two competing candidates. The success of the investment depends on whether or not the candidates are willing and able to collude on low‐tax policies that do not harm their relative chances in the elections. In the experiment, successful political influence never materializes when the firm and candidates interact just once. By contrast, it yields substantially lower redistribution in about 40% of societies with finitely repeated encounters. However, investments are not always profitable, and profit sharing between the firm and candidates depends on prominent equity norms. Our experimental results shed new light on the complex process of buying political influence in everyday politics and help explain why only relatively few firms do actually attempt to influence policymaking.

The Effect of Inequality Frames on Support for Redistributive Tax Policies

The Effect of Inequality Frames on Support for Redistributive Tax Policies

Optimal redistributive tax and education policies in general equilibrium

This paper studies optimal linear and non-linear income taxes and education subsidies in two-type models with endogenous human capital formation, endogenous labor supply, and endogenous wage rates. Assuming constant human capital elasticities, human capital investment should be efficient under optimal linear policies, whether general equilibrium effects are present or not. Hence, education subsidies should not be used for distributional reasons. Due to general equilibrium effects, optimal linear income taxes may even become negative. Optimal non-linear policies exploit general equilibrium effects for redistribution. The high-skilled type optimally has a negative marginal income tax rate and a positive marginal education subsidy. The low-skilled type optimally faces a positive marginal income tax rate and a marginal tax on education. Simulations demonstrate that general equilibrium effects have only a modest effect on optimal non-linear policies.

Tacit Lobbying Agreements: An Experimental Study

We experimentally study the common wisdom that money buys political influence. In the game, one lobbyist has the opportunity to influence redistributive tax policies in her favor by transferring money to two competing candidates. The success of the lobbying investment depends on whether or not the candidates are willing to respond and able to collude on low‐tax policies that do not harm their relative chances in the elections. In the experiment, we find that lobbying is never successful when the lobbyist and candidates interact just once. By contrast, it yields substantially lower redistribution in about 40% of societies with finitely‐repeated encounters. However, lobbying investments are not always profitable, and profit‐sharing between the lobbyist and candidates depends on prominent equity norms. Our experimental results shed new light on the complex process of buying political influence in everyday politics and help explain why only relatively few corporate firms do actually lobby.

International tax competition: do public good spillovers matter?

We study the impact of public good spillovers on tax competition between two imperfectly integrated countries with different levels of productivity. We show that international public good spillovers, by reducing the tax gap between countries, strengthen the agglomeration of firms in the most productive country. Then we carry on a welfare analysis. We first assume that governments are engaged in a redistributive tax policy. At the non-cooperative equilibrium, the tax level in the high-productivity country is inefficiently high while it is inefficiently low in the other country. A different conclusion emerges when tax revenues are recycled in a public good provision: taxes are inefficiently low in both countries and public good spillovers increase the global welfare. Finally, for a given amount of total tax revenues, public good provision in the high-productivity country is inefficiently high compared to its level in the low-productivity country.

Optimal Redistributive Tax and Education Policies in General Equilibrium

Optimal Redistributive Tax and Education Policies in General Equilibrium

Markets as Beneficial Constraints on the Government

We study the role of anonymous markets in which trades cannot be monitored by the government. We adopt a Mirrlees approach to analyze economies in which agents have private information and a benevolent government controls optimal redistributive tax policy. While unrestricted access to anonymous markets reduces the set of policy instruments available to the government, it also limits the scope of inefficient redistributive policies when the government lacks commitment. Indeed, the restrictions that anonymous markets impose on the optimal fiscal policy, especially on capital taxation and the history-dependence of income taxation, can have positive welfare effects in this case.

Markets as beneficial constraints on the government

We study the role of anonymous markets in which trades cannot be monitored by the government. We adopt a Mirrlees approach to analyze economies in which agents have private information and a benevolent government controls optimal redistributive tax policy. While unrestricted access to anonymous markets reduces the set of policy instruments available to the government, it also limits the scope of inefficient redistributive policies when the government lacks commitment. Indeed, the restrictions that anonymous markets impose on the optimal fiscal policy, especially on capital taxation and the history-dependence of income taxation, can have positive welfare effects in this case.