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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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Suggested Citation

  • Nicolas Marceau & Michael Smart, 2003. "Corporate Lobbying and Commitment Failure in Capital Taxation," American Economic Review, American Economic Association, vol. 93(1), pages 241-251, March.
  • Handle: RePEc:aea:aecrev:v:93:y:2003:i:1:p:241-251
    Note: DOI: 10.1257/000282803321455241
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    Cited by:

    1. Robin Boadway & Jean-François Tremblay, 2003. "Public Economics and Startup Entrepreneurs," CESifo Working Paper Series 877, CESifo Group Munich.
    2. Aidt, Toke S. & Magris, Francesco, 2006. "Capital taxation and electoral accountability," European Journal of Political Economy, Elsevier, vol. 22(2), pages 277-291, June.
    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, September.
    4. John A. List & Daniel M. Sturm, 2006. "How Elections Matter: Theory and Evidence from Environmental Policy," The Quarterly Journal of Economics, Oxford University Press, vol. 121(4), pages 1249-1281.
    5. Ian A. Lange & Sarah Polborn, 2012. "Can Lobbying Encourage Abatement? Designing a New Policy Instrument," CESifo Working Paper Series 3760, CESifo Group Munich.
    6. 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.
    7. Lucian A. Bebchuk & Zvika Neeman, 2010. "Investor Protection and Interest Group Politics," NBER Chapters,in: Corporate Governance National Bureau of Economic Research, Inc.
    8. Besley, Timothy & Ghatak, Maitreesh, 2010. "Property Rights and Economic Development," Handbook of Development Economics, Elsevier.
    9. Dino Falaschetti, 2004. "Can Voting Reduce Welfare? Evidence from the US Telecommunications Sector," Public Economics 0401009, EconWPA.
    10. Dino Falaschetti, 2003. "Voter Turnout, Regulatory Commitment, and Capital Accumulation: Evidence from the US Telecommunications Sector," Microeconomics 0311002, EconWPA.
    11. Boadway, Robin & Tremblay, Jean-François, 2012. "Reassessment of the Tiebout model," Journal of Public Economics, Elsevier, vol. 96(11), pages 1063-1078.
    12. 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.
    13. 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.
    14. 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, revised 2004.
    15. Christian At, 2015. "Shareholder versus Stakeholder Protection and Interest-Group Politics," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(3), pages 478-492, September.
    16. Dino Falaschetti, 2004. "Can Voting Reduce Welfare? Evidence from the US Telecommunications Sector," Public Economics 0401006, EconWPA.
    17. repec:kap:enreec:v:67:y:2017:i:4:d:10.1007_s10640-015-9995-9 is not listed on IDEAS

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