Political Economy of Taxation

Political economy of Ramsey taxation

We study the dynamic taxation of capital and labor in the neoclassical growth model under the assumption that taxes and public good provision are decided by a self-interested politician who cannot commit to policies. Citizens can imperfectly control the politician using elections similar to a political agency model. As in the standard dynamic taxation models, we only allow for linear taxes on c...

Political Economy of Intermediate Goods Taxation

We generalize the Diamond–Mirrlees production efficiency theorem, that there should be no taxes on sectors producing pure intermediate goods, to an environment with political economy constraints. In our economy, allocations and taxation are decided by self-interested politicians without the power to commit to future policies. The Diamond–Mirrlees production efficiency result holds even when pol...

On the Political Economy of Income Taxation

The literatures dealing with voting, optimal income taxation, and implementation are integrated here to address the problem of voting over income taxes. In contrast with previous articles, general nonlinear income taxes that affect the labor-leisure decisions of consumers who work and vote are allowed. Uncertainty plays an important role in that the government does not know the true realization...

Political Economy and the Structure of Taxation∗

We study the constrained Pareto efficient allocations in a dynamic production economy in which the group in political power decides the allocation of resources. We show that Pareto efficient allocations take a quasi-Markovian structure and can be represented recursively as a function of the identity of the group in power and updated Pareto weights. For high discount factors, the economy ultimat...

The political economy of tobacco taxation