Tax Morale with Partisan Parties

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 equilibri¬um. 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 per¬ceived average level of tax compliance, increase the probability that the party offering the lowest in¬come tax will win. Moreover, the same result is obtained when parties’ uncertainty about the prefer¬ences of the median voter increases