Income Tax Progressivity and Government Size

Frederic Bastiat once wrote that “the state is the great fiction by which everybody seeks to live at the expense of everybody else.” In a democracy with a progressive income tax system, the majority of the voters bear a lower tax burden for the benefits of government programs they receive compared to the voters in the top income tax brackets. This misalignment of tax prices and benefits leads to a larger size of government. In this paper, I develop a theoretical model that seeks to explain how progressive income taxation can affect government size in a simple-majority electoral system. I will test the model’s conclusions using a longitudinal panel of income tax data from the U.S. States.