Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/46406
Year of Publication: 
2010
Series/Report no.: 
CESifo Working Paper No. 3205
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We augment a standard tax model by concerns about tax equity: people get upset when labour is taxed more heavily than capital. Even the slightest concern for tax equity invalidates the common recommendation for small open economies that capital should remain tax-exempt. This holds for exogenous as well as for endogenous government expenditures and irrespective of whether concerns with tax equity only cause emotional discomfort or also impact on work incentives. If concerns with tax equity get more intense, the economy may choose higher taxes on labour and move to the downward sloped part of its Laffer curve. For endogenous government spending, stronger concerns with tax equity may call for a larger size of the public sector.
Subjects: 
justice
fairness
taxation
policy mix
JEL: 
H20
E62
P16
Z10
Document Type: 
Working Paper
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