Optimal taxation for democracies with less than perfect voters: A public choice perspective

Abstract

This paper analyzes optimal tax policy from the perspective of voters who want public policies to systematically advance their interests. Self-acknowledged ignorance implies that voters have a practical interest in transparent and stable tax systems that allow personal tax burdens to be calculated accurately and easily. Such properties reduce voter mistakes. However, a voter's normative interests may conflict with these practical interests, because ideas about a good life or good society often support tax system complexity. Tradeoffs between these two aims of democratic tax systems imply that the optimal tax system for a democracy neither minimizes voter errors nor maximizes a social welfare function.