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POLITICAL ECONOMY AND THE SOCIAL MARGINAL COST OF PUBLIC FUNDS: THE CASE OF THE MELTZER‐RICHARD ECONOMY
Author(s) -
KEVIN HSU K. W,
YANG C. C.
Publication year - 2008
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.2007.00089.x
Subject(s) - economics , redistribution (election) , economic inequality , politics , redistribution of income and wealth , inequality , microeconomics , public economics , public good , mathematical analysis , mathematics , political science , law
In previous studies on the social marginal cost of public funds (SMCF), the existing tax system has been assumed to be either arbitrary or optimal. This note explores another possibility: the existing tax system itself represents a political equilibrium. Our exploration proceeds in Meltzer and Richard’s (1981) political economy of redistributive taxation. An interesting feature of our finding is that the degree of income inequality as measured by the ratio of mean to median income can play an important role in estimating the SMCF and judging whether the level of redistribution is excessive or inadequate. ( JEL D61, D72, H21)