Voting on Redistribution with Tax Evasion

Abstract

This paper analyzes voting on a linear income tax whose proceeds are redistributed lump sum to the taxpayers. Individuals can evade taxes, which leads to penalties if evasion is detected. Since preferences satisfy neither single peakedness nor single crossing, a voting equilibrium may not exist. When an equilibrium does exist, there are several possible outcomes. There may be 'conventional' equilibria where the rich are expropriated by the poor and middle class. There may be equilibria without full expropriation where redistribution is limited by the threat of evasion. Finally, there may be equilibria where redistribution goes from the middle class to the rich and poor.