In this paper we examine how taxes, subsidies and the design of constitutional agendas should be regulated in order to allow for an efficient allocation of public goods and a limitation of tax distortions. We show that if public goods are socially desirable, the simple majority rule, combined with taxation constrained to majority winners or a ban on subsidies, can achieve several desirable objectives. Equal treatment regarding taxes and subsidies is undesirable. Super majority rules and equal treatment of all citizens with respect to taxes and subsidies, however, are first-best provided public goods are socially undesirable. Finally, we suggest that constitutions with amendments eliminate excessive taxation and allow treatment rules to universally improve welfare.
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- Gersbach, Hans, 1992. "Allocation of information by majority decisions," Journal of Public Economics, Elsevier, vol. 48(2), pages 259-268, July.
- Caplin, Andrew S & Nalebuff, Barry J, 1988. "On 64%-Majority Rule," Econometrica, Econometric Society, vol. 56(4), pages 787-814, July.
- Buchanan, J M, 1998. " Majoritarian Logic," Public Choice, Springer, vol. 97(1-2), pages 13-21, October.
- John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63, pages 309.
- Laffont, Jean-Jacques, 1996. "Industrial policy and politics," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 1-27.
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