Tax complexity with heterogeneous voters

In democratic countries tax systems are complex and elaborated. The issue of tax complexity is a crucial one in the policy debate about tax design and reforms. A recent trend towards simplification has emerged, at least in developed countries. We argue that tax complexity is the result of the interplay between economic and political factors, and we assess the observed trends and the main features of tax complexity under this perspective. Italy represents an interesting case: changes in the structure of the personal income tax in the period 19742005 are meant to reduce tax complexity. Data on the Italian personal income tax suggest the existence of a trade-off in the determination of tax complexity: on one side more complexity is beneficial for a heterogeneous population, since it allows a design closer to individuals' preferences, while on the other side it is costly. We explore the emergence of this trade-off in a voting model. Median voter models are not able to appropriately capture the multidimensional nature of the determination of tax complexity. A simple probabilistic voting model instead delivers interesting results. We find that, when grouping individuals with different income levels in the same income bracket, on one side the political support by individuals, who necessarily will pay a tax rate different from their preferred one, is reduced, while on the other side the administrative cost of taxation is also reduced.