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Redistributive politics with distortionary taxation

  • Crutzen, Benoît S.Y.
  • Sahuguet, Nicolas

This paper proposes a first step towards a positive theory of tax instruments. We present a model of redistributive politics that extends those of Myerson [R. Myerson, Incentives to cultivate minorities under alternative electoral systems, Amer. Polit. Sci. Rev. 87 (1993) 856-869] and Lizzeri and Persico [A. Lizzeri, N. Persico, The provision of public goods under alternative electoral incentives, Amer. Econ. Rev. 91 (2001) 225-239]. Two politicians compete in terms of targeted redistributive promises financed through distortionary taxes. We solve for the case of both targetable and non-targetable taxes. We prove that there is an imperfect efficiency-targetability trade off on the tax side. Politicians prefer targetable taxes over non-targetable ones, especially when the latter are less efficient. Yet, targetable taxation is always used even when it is very inefficient compared to non-targetable taxes.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 144 (2009)
Issue (Month): 1 (January)
Pages: 264-279

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Handle: RePEc:eee:jetheo:v:144:y:2009:i:1:p:264-279
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