Development in Models of Majority Voting over Fixed Income Taxations

As public debt becomes an acute problem for western economies, the political debate becomes more and more dominated by issues related to the need of increasing the progressivity of taxation. In order that one better understands the current context, it is necessary, in our view, to become familiar with the literature of the positive theory of income taxation. This literature regards the tax schemes in democratic societies as emerging from majority voting. The aims of this chapter are the following. First, we briefly review the most important results in the above mentioned literature, trying to explain the empirical regularities of taxations. Second, based on previous work, we discuss how standard equilibrium concepts from simple majority voting games in coalitional form (e.g. core, ? -core and least core) can be adapted to the general setup of voting over income tax schedules, as well as the conditions under which such adapted concepts are stable. Third, we investigate which are the implications of these concepts, from the perspective of progressivity versus regressivity, for workhorse models of the positive theory of income taxation (e.g. with restricted policy spaces such as quadratic taxation models, piecewise linear taxation models, etc.). Finally, we provide a brief critical evaluation of the extent to which this approach is able to address the difficulties acknowledged by the literature in the field and we draw future lines of investigation (such as possible adaptations of Mas-Colell Bargaining Set to the setup of voting over income tax schedules).