Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/185299 
Authors: 
Year of Publication: 
2018
Series/Report no.: 
IZA Discussion Papers No. 11839
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
The evolution of the ratio of direct taxation (characterized by progressive rates) over indirect and payroll taxation (characterized by flat rates) is examined together with its distributional consequences for the Bottom 50%, Middle 40% and Top 10% shares of income. Oscillations of this ratio coincide with the US electoral cycles since the 1960s. We show that periods in which this ratio increases coincide with those in which Democrats rule the government and there is more redistribution from the rich (the Top 10%) to the rest of the population. Conversely, periods in which this ratio falls and Republicans hold the power are characterized by a fall in the ratio and less redistribution from the rich to the rest of the population. Based on a set of counterfactual simulations, we hypothesize that the rich, as informed economic agents, are able to protect themselves against tighter fiscal conditions, thereby curtailing the redistributive effects of enhanced tax progressivity.
Subjects: 
electoral cycles
tax composition
income distribution
tax progressivity
JEL: 
H20
H31
E25
Document Type: 
Working Paper

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