Canegrati's formulae

The three Canegrati's formulae represent an attempt to describe the way politicians choose their taxation policy in the real world. They were developed by economist Emanuele Canegrati [Emanuele, Canegrati, 2007. "A Contribution to the Positive Theory of Direct Taxation," MPRA Paper 6117] [Canegrati, Emanuele, 2007. "A Contribution to the Positive Theory of Indirect Taxation," MPRA Paper 6116] .

The Canegrati's formulae are obtained by the resolution of a maximisation problem in a probabilistic voting model (Persson and Tabellini [Persson, T. and Tabellini, G.: Political Economics, MIT Press, 2000 ] (2000)) characterised by the presence of single-minded groups (Mulligan and Sala-i-Martin (1999) [Mulligan, Casey B. and Sala-i-Martin, Xavier, "Gerontocracy, Retirement, and Social Security" (May 1999). NBER Working Paper No. W7117] ).The first formula describes the way politicians set Indirect Taxation and states that marginal tax rates are lower for those goods consumed most by more single-minded groups. The second formula describes the way politicians set direct taxation and states that marginal tax rates are, again, lower for those groups which have an higher preference for leisure. Finally, the third formula represents a variant of the second, this time considering clusters of groups which differ not only for preference for leisure but also for wage rates.

The parameter that mostly contributes to explain the power of a group is the probability density function (usually assumed as uniform, probit, logit), which captures the degree of homogeneity of political preferences within a specific group.

References

* Canegrati, Emanuele, 2007. "A Contribution to the Positive Theory of Direct Taxation," MPRA Paper 6117 [http://mpra.ub.uni-muenchen.de/6117/]
* Canegrati, Emanuele, 2007. "A Contribution to the Positive Theory of Indirect Taxation," MPRA Paper 6116 [http://mpra.ub.uni-muenchen.de/6116/]
* Mulligan, Casey B. and Sala-i-Martin, Xavier, "Gerontocracy, Retirement, and Social Security" (May 1999). NBER Working Paper No. W7117 [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=227337]
* Persson, T. and Tabellini, G.: Political Economics, MIT Press, 2000