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Can taxes raise output and reduce inequality? The case of lobbying

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  • Klaus Prettner
  • Davud Rostam‐Afschar

Abstract

One of the key institutional elements for reducing inequality is the tax and transfer system. However, economists and policymakers usually view high taxes as detrimental to economic growth. We isolate one important mechanism by which higher taxes reduce inequality and raise per capita gross domestic product (GDP) at the same time. This mechanism operates in the presence of unproductive lobbying. Higher taxes induce a reallocation from lobbying toward production. This raises overall output and reduces the consumption gap between those who benefit from lobbying and those who bear its negative effects.

Suggested Citation

  • Klaus Prettner & Davud Rostam‐Afschar, 2020. "Can taxes raise output and reduce inequality? The case of lobbying," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(5), pages 455-461, November.
    • Handle: RePEc:bla:scotjp:v:67:y:2020:i:5:p:455-461
    DOI: 10.1111/sjpe.12248
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    Cited by:

    1. Óscar Afonso & Pedro G. Lima & Tiago Sequeira, 2022. "The effects of automation and lobbying in wage inequality: a directed technical change model with routine and non-routine tasks," Journal of Evolutionary Economics, Springer, vol. 32(5), pages 1467-1497, November.
    2. Khawaja A. Mamun & Lorán Chollete, 2023. "Individual self‐control and collective outcomes: An examination of cigarette addiction and taxes," Scottish Journal of Political Economy, Scottish Economic Society, vol. 70(1), pages 1-18, February.

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