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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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    Cited by:

    1. Lopez-Rodriguez, David, 2011. "The scope of political redistribution with proportional income taxation," MPRA Paper 44150, University Library of Munich, Germany, revised 2012.
    2. Nicola Pavoni & Christopher Sleet & Matthias Messner, 2014. "The Dual Approach to Recursive Optimization: Theory and Examples," 2014 Meeting Papers 1267, Society for Economic Dynamics.
    3. Messner Matthias & Pavoni Nicola & Sleet Christopher, "undated". "On the Dual Approach to Recursive Optimization," GSIA Working Papers 2012-E12, Carnegie Mellon University, Tepper School of Business.
    4. Pierre M. Picard & Tim Worrall, 2010. "Sustainable Migration Policies," CREA Discussion Paper Series 10-12, Center for Research in Economic Analysis, University of Luxembourg.
    5. Ales, Laurence & Maziero, Pricila & Yared, Pierre, 2014. "A theory of political and economic cycles," Journal of Economic Theory, Elsevier, vol. 153(C), pages 224-251.
    6. Acemoglu, Daron & Golosov, Mikhail & Tsyvinski, Aleh, 2011. "Political economy of Ramsey taxation," Journal of Public Economics, Elsevier, vol. 95(7), pages 467-475.
    7. Olivier Bargain & Mathias Dolls & Dirk Neumann & Andreas Peichl & Sebastian Siegloch, 2014. "Comparing inequality aversion across countries when labor supply responses differ," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(5), pages 845-873, October.
    8. Acemoglu, Daron & Golosov, Mikhail & Tsyvinski, Aleh, 2011. "Power fluctuations and political economy," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1009-1041, May.
    9. Micael Castanheira & Gaëtan Nicodème & Paola Profeta, 2012. "On the political economics of tax reforms: survey and empirical assessment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(4), pages 598-624, August.
    10. repec:eee:macchp:v2-2599 is not listed on IDEAS
    11. Alberto Alesina & Andrea Passalacqua, 2015. "The Political Economy of Government Debt," NBER Working Papers 21821, National Bureau of Economic Research, Inc.
    12. Jenny Simon, 2014. "The Role of Imperfect Financial Markets for Social Redistribution," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 11(4), pages 32-37, 01.
    13. Kim, Sang-Hyun, 2016. "On the optimal social contract: Agency costs of self-government," Journal of Comparative Economics, Elsevier, vol. 44(4), pages 982-1001.
    14. Jenny Simon, 2011. "Financial Markets as a Commitment Device for the Government," 2011 Meeting Papers 447, Society for Economic Dynamics.
    15. Pierre M. Picard & Tim Worrall, 2016. "Is a Policy of Free Movement of Workers Sustainable?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(4), pages 718-754, October.
    16. Luigi Iovino & Mikhail Golosov, 2013. "Social Insurance, Information Revelation, and Lack of Commitment," 2013 Meeting Papers 1020, Society for Economic Dynamics.
    17. Dai, Darong, 2013. "Cooperative economic growth," Economic Modelling, Elsevier, vol. 33(C), pages 407-415.
    18. Jenny Simon, 2014. "Imperfect Financial Markets as a Commitment Device for the Government," CESifo Working Paper Series 4902, CESifo Group Munich.
    19. Bierbrauer, Felix J. & Boyer, Pierre C., 2013. "Political competition and Mirrleesian income taxation: A first pass," Journal of Public Economics, Elsevier, pages 1-14.
    20. Opp, Marcus M., 2012. "Expropriation risk and technology," Journal of Financial Economics, Elsevier, vol. 103(1), pages 113-129.
    21. Dai, Darong, 2012. "Comparative Studies on Cooperative Stochastic Differential Game and Dynamic Sequential Game of Economic Maturity," MPRA Paper 44339, University Library of Munich, Germany.
    22. repec:ces:ifodic:v:11:y:2014:i:4:p:19105974 is not listed on IDEAS
    23. Faíña, Andrés & López-Rodríguez, Jesús & Varela-Candamio, Laura, 2013. "Reinterpreting the Frisch parameter in the field of personal taxation: A link between taxable capacity and social marginal utility in Optimal Taxation," Economics Letters, Elsevier, vol. 118(1), pages 81-83.

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