Redistribution, Taxes, and the Median Voter

Marco Bassetto, Federal Reserve Bank of Chicago
Jess Benhabib, New York University

Abstract

We study a simple model of production, accumulation, and redistribution, where agents are heterogeneous in their initial wealth, and a sequence of redistributive tax rates is voted upon. Though the policy is infinite-dimensional, we prove that a median voter theorem holds if households have identical, Gorman aggregable preferences; furthermore, the tax policy preferred by the median voter has the “bang-bang” property.

An older version with some typos is available as Federal Reserve Bank of Chicago Working Paper 2006-02.