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Income Taxation and the Diversity of Consumer Goods: A Political Economy Approach *
Author(s) -
Bourlès Renaud,
Dorsch Michael T.,
Maarek Paul
Publication year - 2019
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12307
Subject(s) - economics , redistribution (election) , voting , majority rule , economic inequality , consumption (sociology) , goods and services , politics , diversity (politics) , inequality , market economy , mathematical analysis , social science , mathematics , artificial intelligence , sociology , political science , computer science , anthropology , law
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.