Tax differentiation, lobbying, and welfare

To what extent a taxing authority should be granted the power to impose different tax schedules to different groups of taxpayers? Although the policy maker aims at maximizing social welfare, her tax policy may be distorted by the lobbying activity of taxpayers. In this political environment we chara...

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Bibliographic Details
Published in:Social choice and welfare 2014-04, Vol.42 (4), p.977-1006
Main Authors: Brusco, Sandro, Colombo, Luca, Galmarini, Umberto
Format: Article
Language:English
Subjects:
Analysis
Authority
Competition
Consumption
Differentiation
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Fiscal policy
Game Theory
Income taxes
International Political Economy
Lobbying
Objectivity
Optimal taxation
Original Paper
Politics
Proportional taxes
Public Finance
Public policy
Social and Behav. Sciences
Social Policy
Social research
Social welfare
Studies
Tax base
Tax Policy
Tax rates
Tax subsidies
Taxation
Taxes
Taxicabs
Taxpayers
Taxpaying
Voters
Welfare
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Summary:To what extent a taxing authority should be granted the power to impose different tax schedules to different groups of taxpayers? Although the policy maker aims at maximizing social welfare, her tax policy may be distorted by the lobbying activity of taxpayers. In this political environment we characterize the conditions under which social welfare can be increased by restricting the set of tax instruments available to the policy maker; i.e., the scope of tax differentiation. We show that full differentiation is more costly, in terms of welfare distortions, when the lobbies are asymmetric in size, while minimal differentiation is more costly when the tax bases are asymmetric across different groups.
ISSN:0176-1714
1432-217X
DOI:10.1007/s00355-013-0753-z