Redistributive Conflicts and Preferences for Tax Schemes in Europe

Meltzer and Richard (1981) state that democracy will boost redistribution of income from the rich to the poor. Given that the median-income voter is poorer than the average-income voter, a majority of voters will vote for redistribution. Although the assertion of a positive relationship between democracy and equalization of income has been highly criticized on both theoretical and empirical grounds, most empirical studies have focused on responses to the conventional question about whether the government should reduce income differences. In this paper we propose a different specification of the Meltzer and Richard hypothesis in which individuals do not have to vote for a general tax rate, but for taxes for particular groups. To test this theoretical model empirically, we use data about preferences for taxation taken from the ISSP (Role of Government), in which individuals must express their agreement with the taxes paid by different income groups. We propose a measure of targeted redistribution through taxation at the individual level that is used as the dependent variable in further analyses. Several hypotheses about preferences for tax schemes are tested. At the individual level, we test whether preferences are explained by self-interest variables such as socio-economic status and labor market situation. At the aggregate level, we test whether preferences for tax schemes are related to inequality and tax burden by country. To analyze these issues, we use a multilevel methodology. Empirical evidence shows that preferences for tax schemes are mainly driven by self-interest, although there are important differences by countries.