Essays on the Political Economy of Fiscal Policy
José Carlos Tello
Tesis, Doctorado en Economía, IE-PUC, 2014
Abstract: This dissertation consists of two essays on the political economy of fiscal policy. In the first essay, I analyze the persistent difference between legal and effective direct tax rate. This difference is explained by the level of tax enforcement. I consider that tax
enforcement is a policy choice and study how society determines tax enforcement policy through a process of social preference aggregation. It find that tax enforcement causes an intertemporal conflict between workers and capitalists. In doing so, we seek a sharper answer o why direct tax enforcement varies across economies. In the second essay, coauthored with Klaus Schmidt-Hebbel, we develop a dynamic general-equilibrium political-economy model for the optimal size and composition of public spending. An analytical solution is derived from majority voting for three government spending categories: public consumption goods and transfers, as well as productive government services. We establish conditions, in an environment of multi-dimensional voting, under which a non-monotonic, inverted U-shape relation between inequality and growth is obtained.