In their work on education subsidies, Rogerson and Fernandez (1995) showed that reverse redistribution is an equilibrium outcome of voting on the tax rate and the extent to which education is publicly provided. The voting equilibrium in their economy results in all households paying taxes to support the education of the middle-income and high-income households. A key assumption in their model is the proportional tax rate. A review of effective tax rates in the U.S. shows regressive tax structures prevailing. We show that with a regressive tax system and partial subsidies for education, an equilibrium voting outcome could result in all households paying taxes to support education for almost only high-income households only. The result is a stronger version of redistribution than previously shown. As in the previous result, increased income inequality makes the outcome more likely. Additionally, we find justification from theory and empirical evidence that higher poverty rates and narrower income distributions lead to higher public support for more regressive tax structures.
|State||In preparation - 1800|