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Corporate Lobbying and Commitment Failure in Capital Taxation

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  • Nicolas Marceau
  • Michael Smart

Abstract

This paper investigates the effects of lobbying by corporations when investments are irreversible and government cannot commit to tax policies. We show that industries which rely more heavily on sunk capital lobby more vigorously and are generally more successful in obtaining tax breaks. Thus lobbying can mitigate the capital levy problem. Nevertheless, these industries invest less in long-run equilibrium than more flexible ones. We then consider the effects of relaxing legal restrictions on corporate lobbying. When the deadweight costs of lobbying fall, taxes on sunk capital tend to fall, but political contributions may rise, as lobbyists compete more intensively for political favors. On balance, a ban of lobbying may therefore cause investment to rise or fall.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 1 (March)
Pages: 241-251

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Handle: RePEc:aea:aecrev:v:93:y:2003:i:1:p:241-251

Note: DOI: 10.1257/000282803321455241
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References

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  2. Persson, Torsten & Tabellini, Guido, 1994. "Representative democracy and capital taxation," Journal of Public Economics, Elsevier, vol. 55(1), pages 53-70, September.
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  9. Besley, Timothy & Coate, Stephen, 2001. "Lobbying and Welfare in a Representative Democracy," Review of Economic Studies, Wiley Blackwell, vol. 68(1), pages 67-82, January.
  10. Nicolas Marceau & Michael Smart, 2000. "Business Tax Lobbying," Cahiers de recherche CREFE / CREFE Working Papers 102, CREFE, Université du Québec à Montréal.
  11. Gene Grossman & Elhanan Helpman, 1994. "Electoral Competition and Special Interest Politics," NBER Working Papers 4877, National Bureau of Economic Research, Inc.
  12. Kotlikoff, Laurence J & Persson, Torsten & Svensson, Lars E O, 1988. "Social Contracts as Assets: A Possible Solution to the Time-Consistency Problem," American Economic Review, American Economic Association, vol. 78(4), pages 662-77, September.
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Citations

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Cited by:
  1. Timothy Besley & Maitreesh Ghatak, 2009. "Property Rights and EconomicDevelopment," STICERD - Economic Organisation and Public Policy Discussion Papers Series 006, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  2. Robin Boadway & Jean-François Tremblay, 2003. "Public Economics and Startup Entrepreneurs," CESifo Working Paper Series 877, CESifo Group Munich.
  3. Richard E. Baldwin & Frédéric Robert-Nicoud, 2007. "Entry and Asymmetric Lobbying: Why Governments Pick Losers," Journal of the European Economic Association, MIT Press, vol. 5(5), pages 1064-1093, 09.
  4. John A., List & Daniel, Sturm, 2006. "How Elections Matter: Theory and Evidence from Environmental Policy," Discussion Papers in Economics 768, University of Munich, Department of Economics.
  5. Boerner, Kira, 2005. "Having Everyone in the Boat May Sink it - Interest Group Involvement and Policy Reforms," Discussion Papers in Economics 730, University of Munich, Department of Economics.
  6. David E. Wildasin, 2006. "Global Competition for Mobile Resources: Implications for Equity, Efficiency and Political Economy," CESifo Economic Studies, CESifo, vol. 52(1), pages 61-110, March.
  7. Börner, Kira, 2004. "Political Economy Reasons for Government Inertia: The Role of Interest Groups in the Case of Access to Medicines," Discussion Papers in Economics 313, University of Munich, Department of Economics.
  8. Lucian A. Bebchuk & Zvika Neeman, 2007. "Investor Protection and Interest Group Politics," NBER Working Papers 13702, National Bureau of Economic Research, Inc.
  9. Boadway, Robin & Tremblay, Jean-François, 2012. "Reassessment of the Tiebout model," Journal of Public Economics, Elsevier, vol. 96(11), pages 1063-1078.
  10. Aidt, T. & Magris, F., 2003. "Capital Taxation and Electoral Accountability," Cambridge Working Papers in Economics 0318, Faculty of Economics, University of Cambridge.
  11. Stanley L. Winer & Walter Hettich, 2002. "The Political Economy of Taxation: Positive and Normative Analysis when Collective Choice Matters," Carleton Economic Papers 02-11, Carleton University, Department of Economics.
  12. Dino Falaschetti, 2004. "Can Voting Reduce Welfare? Evidence from the US Telecommunications Sector," Public Economics 0401006, EconWPA.
  13. Dino Falaschetti, 2004. "Can Voting Reduce Welfare? Evidence from the US Telecommunications Sector," Public Economics 0401009, EconWPA.
  14. Dino Falaschetti, 2003. "Voter Turnout, Regulatory Commitment, and Capital Accumulation: Evidence from the US Telecommunications Sector," Microeconomics 0311002, EconWPA.

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