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Business Tax Lobbying

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This paper investigates the effects of business tax lobbying in the presence of investments that are sunk or costly to adjust in the short run. We show that industries which rely more heavily on sunk capital are generally more successful in obtaining tax breaks through lobbying; this reverses the usual logic of 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 politicians give more weight to lobbyists' preferences, taxes fall on average and investment rises. But investment is misallocated among industries, so that welfare may fall. Thus restrictions on business lobbyists may be desirable. Dans ce texte, nous étudions le lobbying des sociétés visant à réduire leurs impôts lorsque le capital qu'elles utilisent est irrécupérable ou coûteux à ajuster à court terme. Il est démontré que grâce au lobbying, les industries utilisant un capital relativement coûteux à ajuster obtiennent les baisses d'impôt les plus substantielles. Néanmoins, ces industries investissent moins à long terme que celles utilisant un capital plus flexible. Nous étudions également l'effet d'une libéralisation des règles encadrant le lobbying des sociétés. Lorsque les politiciens attachent plus d'importance aux préférences des lobbies, le niveau moyen de taxation diminue et l'investissement augmente. Le bien-être peut cependant diminuer à cause de la mauvaise répartition de l'investissement entre les industries. Un certain encadrement du lobbying des sociétés peut donc être désirable.

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Bibliographic Info

Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 102.

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Length: 22 pages
Date of creation: Jan 2000
Date of revision:
Handle: RePEc:cre:crefwp:102

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Keywords: Lobbying; Business taxation; Investment;

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  1. Laussel, Didier & Le Breton, Michel, 2001. "Conflict and Cooperation: The Structure of Equilibrium Payoffs in Common Agency," Journal of Economic Theory, Elsevier, vol. 100(1), pages 93-128, September.
  2. 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.
  3. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September.
  4. 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.
  5. Barry Eichengreen, 1991. "The Capital Levy in Theory and Practice," NBER Working Papers 3096, National Bureau of Economic Research, Inc.
  6. Avinash Dixit, 1996. "Special-Interest Lobbying and Endogenous Commodity Taxation," Eastern Economic Journal, Eastern Economic Association, vol. 22(4), pages 375-388, Fall.
  7. 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.
  8. Fischer, Stanley, 1980. "Dynamic inconsistency, cooperation and the benevolent dissembling government," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 93-107, May.
  9. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
  10. Bhagwati, Jagdish N, 1982. "Directly Unproductive, Profit-seeking (DUP) Activities," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 988-1002, October.
  11. Grossman, Gene M & Helpman, Elhanan, 1996. "Electoral Competition and Special Interest Politics," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 265-86, April.
  12. 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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Cited by:
  1. Le Breton, Michel & Salanie, Francois, 2003. "Lobbying under political uncertainty," Journal of Public Economics, Elsevier, vol. 87(12), pages 2589-2610, December.
  2. Nicolas Marceau & Michael Smart, 2002. "Corporate Lobbying and Commitment Failure in Capital Taxation," CESifo Working Paper Series 676, CESifo Group Munich.

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