Tax Morale with Partisan Parties

Abstract

This paper analyzes the political economy of income redistribution when voters are concerned about tax compliance We consider a two stage-model where there is a two party competition over the tax rate in the first stage and voters decide about their level of tax compliance in the second stage We model political competition a la Wittman with the ideology of parties endogenously determined at equilibrium We calibrate the model for an average of EU-27 countries Numerical simulations provide the tax rates proposed by the two parties and the level of tax compliance We find that a decrease in the perceived average level of tax compliance, increase the probability that the party offering the lowest income tax will win Moreover, the same result is obtained when parties� uncertainty about the preferences of the median voter increases.