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Tax Rules

  • Gersbach, Hans
  • Hahn, Volker
  • Imhof, Stephan

We examine the provision of public projects under tax and subsidy rules. We find that tax rules separated from project cum subsidy decisions exhibit several advantages when incentive problems of the agenda-setter are taken into account. In particular, tax rules may prevent the proposal of inefficient projects that benefit only a small lobby group. We propose “redistribution efficiency” as a socially desirable property of proposals and find that tax rules always guarantee this kind of efficiency. We show that rules on subsidies combined with discretion regarding taxes always yield socially inferior proposals. Finally, tax rules induce the agenda-setter to look for potential improvements of public projects.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7831.

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Date of creation: May 2010
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Handle: RePEc:cpr:ceprdp:7831
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  1. Boadway, Robin & Keen, Michael, 1993. "Public Goods, Self-Selection and Optimal Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 463-78, August.
  2. Roberto Galbiati & Pietro Vertova, 2008. "Horizontal Equity," Economica, London School of Economics and Political Science, vol. 75(298), pages 384-391, 05.
  3. Vidar Christiansen, 1981. "Evaluation of Public Projects under Optimal Taxation," Review of Economic Studies, Oxford University Press, vol. 48(3), pages 447-457.
  4. Alan J. Auerbach & Kevin A. Hassett, 1999. "A New Measure of Horizontal Equity," NBER Working Papers 7035, National Bureau of Economic Research, Inc.
  5. Matthew O. Jackson, 2001. "A crash course in implementation theory," Social Choice and Welfare, Springer, vol. 18(4), pages 655-708.
  6. Alesina, Alberto & Ichino, Andrea & Karabarbounis, Loukas, 2007. "Gender Based Taxation and the Division of Family Chores," IZA Discussion Papers 3233, Institute for the Study of Labor (IZA).
  7. Hans Gersbach, 1999. "Fiscal Constitutions," CESifo Working Paper Series 223, CESifo Group Munich.
  8. Nicola Persico & Alessandro Lizzeri, 2001. "The Provision of Public Goods under Alternative Electoral Incentives," American Economic Review, American Economic Association, vol. 91(1), pages 225-239, March.
  9. Aghion, Philippe & Bolton, Patrick, 2003. "Incomplete Social Contracts," Scholarly Articles 4554123, Harvard University Department of Economics.
  10. Saint-Paul, Gilles, 2007. "Against 'Gender-based taxation'," CEPR Discussion Papers 6582, C.E.P.R. Discussion Papers.
  11. Martin Hellwig, 2004. "Optimal Income Taxation, Public-Goods Provision and Public-Sector Pricing: A Contribution to the Foundations of Public Economics," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2004_14, Max Planck Institute for Research on Collective Goods.
  12. N. Gregory Mankiw & Matthew Weinzierl, 2010. "The Optimal Taxation of Height: A Case Study of Utilitarian Income Redistribution," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 155-76, February.
  13. Hans Gersbach, 2009. "Democratic Mechanisms," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1436-1469, December.
  14. Coughlin, Peter J, 1990. " Majority Rule and Election Models," Journal of Economic Surveys, Wiley Blackwell, vol. 4(2), pages 157-88.
  15. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, June.
  16. Stuart, Charles E, 1984. "Welfare Costs per Dollar of Additional Tax Revenue in the United States," American Economic Review, American Economic Association, vol. 74(3), pages 352-62, June.
  17. Browning, Edgar K, 1987. "On the Marginal Welfare Cost of Taxation," American Economic Review, American Economic Association, vol. 77(1), pages 11-23, March.
  18. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, vol. 75(1), pages 128-38, March.
  19. David Pérez-Castrillo & David Wettstein, 2002. "Choosing Wisely: A Multibidding Approach," American Economic Review, American Economic Association, vol. 92(5), pages 1577-1587, December.
  20. Greenberg, Joseph, 1979. "Consistent Majority Rules over Compact Sets of Alternatives," Econometrica, Econometric Society, vol. 47(3), pages 627-36, May.
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