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Dynamic Mirrlees Taxation under Political Economy Constraints

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  • Daron Acemoglu
  • Mikhail Golosov
  • Aleh Tsyvinski

Abstract

We study the structure of non-linear taxes in a dynamic economy subject to political economy problems. In contrast to existing literature, taxes are set by a self-interested politician, without any commitment power, who is partly controlled by the citizens. We prove that: (1) a version of the revelation principle applies; and (2) the provision of incentives to politicians can be separated from the provision of incentives to individuals. Using these results, we provide conditions under which distortions created by political economy problems persist or disappear. We then extend these results to environments with partially benevolent governments and potential ex post conflict among the citizens. Copyright , Wiley-Blackwell.

Suggested Citation

  • Daron Acemoglu & Mikhail Golosov & Aleh Tsyvinski, 2010. "Dynamic Mirrlees Taxation under Political Economy Constraints," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 841-881.
  • Handle: RePEc:oup:restud:v:77:y:2010:i:3:p:841-881
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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2009.00587.x
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