Regulation and Taxation: Analyzing Policy Interdependence

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Regulation and Taxation: Analyzing Policy Interdependence

Author Info

Walter Hettich () (Department of Economics, California State University, Fullerton)
Stanley L. Winer () (School of Public Policy and Administration, Carleton University)

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Stanley L Winer

Abstract

The paper draws attention to the interdependence of regulation and taxation. We analyze the nature of policy equilibrium, as well as the implications of three historically important political and economic shocks, for the joint use of the two policy instruments in a framework that embodies relationships common in the literature on political economy. Regulation is represented by barriers to entry created by the government for a favored industry. Among the results are the following: the introduction of new methods of communication in politics, such as television advertising, leads to increased taxation of the average voter, greater entry barriers in private markets and greater resource use for campaign advertising, with the elasticity of supply in the regulated industry playing a crucial role. Growth in the labor force participation of women, on the other hand, lowers business tax rates, while resulting in more regulation and higher contributions of political resources. The paper concludes with a consideration of the efficiency of policy equilibrium and the analytical problems that arise in evaluating efficiency in such a context.

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Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 04-03.

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Length: 33 pages
Date of creation: 01 Mar 2004
Date of revision:
Publication status: Published: Carleton Economic Paper
Handle: RePEc:car:carecp:04-03

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Find related papers by JEL classification:
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

This paper has been announced in the following NEP Reports:

NEP-ACC-2004-04-25 (Accounting & Auditing)
NEP-ALL-2004-04-25 (All new papers)
NEP-REG-2004-04-25 (Regulation)

References listed on IDEAS
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Coughlin, Peter & Nitzan, Shmuel, 1981. "Electoral outcomes with probabilistic voting and Nash social welfare maxima," Journal of Public Economics, Elsevier, vol. 15(1), pages 113-121, February. [Downloadable!] (restricted)
Hahn, Robert W, 1990. " Instrument Choice, Political Reform and Economic Welfare," Public Choice, Springer, vol. 67(3), pages 243-56, December.
Richard A. Posner, 1971. "Taxation by Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 22-50, Spring. [Downloadable!] (restricted)
Andreas Polk, 2002. "How Special Interests Shape Policy - A Survey," Working Papers 0206, University of Zurich, Socioeconomic Institute, revised Jul 2002. [Downloadable!]
Cassing, James H & Hillman, Arye L, 1986. "Shifting Comparative Advantage and Senescent Industry Collapse," American Economic Review, American Economic Association, vol. 76(3), pages 516-23, June. [Downloadable!] (restricted)
Migue, Jean-Luc, 1977. "Controls versus Subsidies in the Economic Theory of Regulation," Journal of Law & Economics, University of Chicago Press, vol. 20(1), pages 213-21, April.
Hettich, W. & Winer, S.L., 1993. "The Political Economy of Taxation," Papers 8, Carleton - Business Administration.
Other versions:
- Hettich, W. & Winter, S.L., 1993. "The Political Economy of Taxation," Papers 93-2, Carleton - Business Administration.
Dixit, Avinash & Grossman, Gene M & Helpman, Elhanan, 1997. "Common Agency and Coordination: General Theory and Application to Government Policy Making," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 752-69, August.

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