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Special-Interest Lobbying and Endogenous Commodity Taxation

  • Avinash Dixit

    (Princeton University)

This paper offers an initial exploration of a positive counterpart to the normative Ramsey-Diamond-Mirrlees theory of optimal commodity taxation. A model of lobbying for taxes and subsidies on production and consumption in an open economy is constructed, generalizing the Crossman-Helpman model of protection. It is found that the equilibrium of the lobbying process generally violates aggregate production efficiency, contrary to the normatively optimal policy. The outcome also differs markedly from the model of lobbying for protection: the equilibrium policy involves mostly production subsidies, not import tariffs.

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Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 22 (1996)
Issue (Month): 4 (Fall)
Pages: 375-388

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Handle: RePEc:eej:eeconj:v:22:y:1996:i:4:p:375-388
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  1. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September.
  2. Peter J. Hammond, 1979. "Straightforward Individual Incentive Compatibility in Large Economies," Review of Economic Studies, Oxford University Press, vol. 46(2), pages 263-282.
  3. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-78, June.
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