Redistributive politics with distortionary taxation

This paper proposes a first step towards a positive theory of tax instruments. We present a model of redistributive politics that extends those of Myerson [R. Myerson, Incentives to cultivate minorities under alternative electoral systems, Amer. Polit. Sci. Rev. 87 (1993) 856–869] and Lizzeri and Pe...

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Bibliographic Details
Published in:Journal of economic theory 2009, Vol.144 (1), p.264-279
Main Authors: Crutzen, Benoît S.Y., Sahuguet, Nicolas
Format: Article
Language:English
Subjects:
Competition
Distortionary taxation
Economic models
Economic theory
Fiscal policy
Fiscal theory
Income redistribution
Political behavior
Political behaviour
Political economy
Politics
Redistributive politics
Redistributive politics Distortionary taxation
Redistributive taxation
Studies
Taxation
Taxes
Trade-off
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Summary:This paper proposes a first step towards a positive theory of tax instruments. We present a model of redistributive politics that extends those of Myerson [R. Myerson, Incentives to cultivate minorities under alternative electoral systems, Amer. Polit. Sci. Rev. 87 (1993) 856–869] and Lizzeri and Persico [A. Lizzeri, N. Persico, The provision of public goods under alternative electoral incentives, Amer. Econ. Rev. 91 (2001) 225–239]. Two politicians compete in terms of targeted redistributive promises financed through distortionary taxes. We solve for the case of both targetable and non-targetable taxes. We prove that there is an imperfect efficiency–targetability trade off on the tax side. Politicians prefer targetable taxes over non-targetable ones, especially when the latter are less efficient. Yet, targetable taxation is always used even when it is very inefficient compared to non-targetable taxes.
ISSN:0022-0531
1095-7235
DOI:10.1016/j.jet.2008.04.004