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Poltically credible taxation

Author

Listed:
  • Christopher Sleet

    () (Tepper School of Business Carnegie Mellon University)

  • Sevin Yeltekin

Abstract

We consider an environment in which a government implements a sequence of tax mechanisms that assign allocations to a population of privately informed agents. These mechanisms are determined by a process of electoral competition with agents voting over political candidate-mechanism pairs in each period. This arrangement precludes government commitment. Although, the t-th period mechanism plays an essential role in the provision of incentives for agents in periods prior to t, voters ignore this past benefit when they vote in the t-th period election. However, the outcome of a given mechanism depends both on the mechanism itself and agents behavior which, in turn depends on agents beliefs about future mechanisms. These beliefs can underpin trigger strategies that discipline the electoral process. We characterize the set of politically credible allocations and tax mechanisms in this setting and link their properties to the details of the electoral process

Suggested Citation

  • Christopher Sleet & Sevin Yeltekin, 2006. "Poltically credible taxation," 2006 Meeting Papers 344, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:344
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    More about this item

    Keywords

    Dynamic optimal taxation; Credibility; Politics;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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