Regulation versus Taxation
نویسندگان
چکیده
We study which policy tool and at what level is chosen by majority voting in order to reduce negative externalities, such as pollution. We consider three instruments: a rule, that sets an upper limit to the activity which produces the negative externality, a quota that forces a proportional reduction of the activity, and a proportional tax on it. For all instruments the majority chooses levels which are too restrictive when the activity is performed mainly by a small fraction of the population, and when costs for reducing activities or paying taxes are quite convex. However, in case of a rule too restrictive levels are more frequent than in case of a tax or a quota. Even though a tax is in general superior to the other two instruments, the majority may strategically choose a rule in order to charge the minority a larger share of the cost for the externality reduction.
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