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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. 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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  10. 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.
  11. Alan J. Auerbach & Kevin A. Hassett, 1999. "A New Measure of Horizontal Equity," NBER Working Papers 7035, National Bureau of Economic Research, Inc.
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  13. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, December.
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  15. N. Gregory Mankiw & Matthew Weinzierl, 2009. "The Optimal Taxation of Height: A Case Study of Utilitarian Income Redistribution," NBER Working Papers 14976, National Bureau of Economic Research, Inc.
  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.
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  19. Hans Gersbach, 2009. "Democratic Mechanisms," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1436-1469, December.
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