EQUITY IN TRANSITION: INCOME INEQUALITY AND TAX REDISTRIBUTION IN TAIWAN
Abstract
The paradox of voting behavior among low-income individuals and their preference for right-wing parties, which typically advocate for limited income redistribution, presents a puzzling conundrum in democratic systems. On the surface, one might expect that voters with lower incomes would favor a tax rate of unity, thereby facilitating the complete redistribution of income to match the societal mean. However, empirical observations in numerous democracies reveal a distinct trend where blue-collar workers tend to support right-wing parties, despite the inherent contradiction with their economic interests. The extensive literature attempting to unravel this puzzle has yielded diverse outcomes, primarily due to the heterogeneous effects of democracy on taxation and income inequality, as synthesized by Acemoglu et al. (2015).
For instance, works by Olson (1993), McGuire and Olson (1996), and Niskanen (1997) suggest that, when democracies grant the right to vote to individuals with lower incomes, their overall tax burdens are lower compared to non-democratic counterparts. In contrast, Meltzer and Richard (1981) posit that an expansion of democracy should lead to an increase in tax revenues and a heightened level of income redistribution. Aidt et al. (2006) and Aidt and Jensen (2009) delve into historical panel data on democratization in Europe, revealing robust positive effects of suffrage on tax revenues expressed as a percentage of GDP.
This study navigates the intricate terrain of voting behavior, taxation, and income redistribution in democratic contexts, shedding light on the multifaceted dynamics that underlie this complex puzzle. By examining the paradox of low-income voters supporting right-wing parties and the disparate findings in the existing literature, this research aims to elucidate the diverse effects of democracy on fiscal policy and income inequality. In doing so, it provides valuable insights into the interplay of economic interests, political preferences, and the democratic landscape.
