Income Taxation, Political Accountability and the Provision of Public Goods

Using a voting-agency model with heterogeneous voters and different tax schedules, we analyze whether an increment in income taxes---understood as an increment in either marginal tax rates, or tax progressivity---positively affects voters' political demands, the provision of public goods (PPG), and incumbent's efforts. We show that this outcome can be only observed under particular circumstances. Results depend on the combination of three factors: whether rich voters' demands for public goods are larger or smaller than respective poor voters' demands; whether the pivotal voter's disposable income increases or decreases as taxes increase (i.e., voters' income level and its distribution); and whether total tax revenues increase or decrease as taxes increase. Furthermore, which of these factors matter depends on whether the incumbent is able to use a non-confiscatory or a confiscatory policy when he forgoes re-election. Notably, we show that an increment in the PPG generated by an increment in taxes does not necessarily implies an increment in incumbent's efforts.

Oscar Nupia Martinez