Political Lobbying, Individual Rationality, and Asymmetry of Taxes and Subsidies
The effects of Piguvian taxes and subsidies on pollution control are compared for an industry, with politically powerful producers. Only minimal structural and behavioral assumptions are adopted: profit maximization, the participation constraint, and that politicians are readily influenced. It is shown that the only surviving conclusions of the normative, politically free analysis are that taxes improve welfare in the short-run, whereas subsidies reduce it in the long-run. Otherwise, with political pressure, taxes and subsidies may be worse than a hands off, nonintervention policy. Also, in a political equilibrium, production is not efficient and costs are not minimized. The paper further shows that the preferred policy instrument cannot be determined on theoretical grounds; detailed knowledge of technical and behavioral parameters is required in order to find the best policy tool.
|Date of creation:||1996|
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- Martin L. Weitzman, 1974.
"Prices vs. Quantities,"
Review of Economic Studies,
Oxford University Press, vol. 41(4), pages 477-491.
- M. L. Weitzman, 1973. "Prices vs. Quantities," Working papers 106, Massachusetts Institute of Technology (MIT), Department of Economics.
- Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April. Full references (including those not matched with items on IDEAS)
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