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Regulation and Taxation: Analyzing Policy Interdependence

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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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Bibliographic Info

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: Mar 2004
Date of revision:
Publication status: Published: Carleton Economic Papers
Handle: RePEc:car:carecp:04-03

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Keywords: regulation; taxation; policy interdependence; political advertising; efficiency of political equilibrium.;

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  1. Andreas Polk, 2002. "How Special Interests Shape Policy - A Survey," SOI - Working Papers 0206, Socioeconomic Institute - University of Zurich, revised Jul 2002.
  2. Mueller,Dennis C., 2003. "Public Choice III," Cambridge Books, Cambridge University Press, number 9780521894753.
  3. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  4. Hettich,Walter & Winer,Stanley L., 2005. "Democratic Choice and Taxation," Cambridge Books, Cambridge University Press, number 9780521021807.
  5. Hettich, W. & Winter, S.L., 1993. "The Political Economy of Taxation," Papers 93-2, Carleton - Business Administration.
  6. Rutherford, T. & Winer, S.L., 1990. "Endogenous Policy In A Computational General Equilibrium Framework," UWO Department of Economics Working Papers 9007, University of Western Ontario, Department of Economics.
  7. Hahn, Robert W, 1990. " Instrument Choice, Political Reform and Economic Welfare," Public Choice, Springer, vol. 67(3), pages 243-56, December.
  8. 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.
  9. Migue, Jean-Luc, 1977. "Controls versus Subsidies in the Economic Theory of Regulation," Journal of Law and Economics, University of Chicago Press, vol. 20(1), pages 213-21, April.
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