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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. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2007. "Gender Based Taxation and the Division of Family Chores," NBER Working Papers 13638, National Bureau of Economic Research, Inc.
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  15. Hans Gersbach, 2009. "Democratic Mechanisms," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1436-1469, December.
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