Economic and Political Foundations of Tax Structure

TLDR

The paper derives the essential elements of tax systems as outcomes of rational behavior where governments maximize expected support and taxpayers oppose taxation based on income loss. The model treats expenditure levels endogenously, incorporates administration costs, political and economic factors, and compares its results to optimal taxation and the Leviathan model. Tax structure is shown to be a system of related components in equilibrium. Copyright 1988 by the American Economic Association.

Abstract

This paper derives the essential elements of tax systems as the outcome of rational behavior in a model w here government maximizes expected support and where opposition to ta xation depends on the loss in full income. The analysis treats the le vel of expenditures as endogenous and integrates the influence of adm inistration costs with that of political and economic factors. Tax st ructure is shown to be a system of related components in equilibrium. A final section compares results to two alternative approaches, opti mal taxation and the Leviathan model. Copyright 1988 by American Economic Association.