Redistributive politics with distortionary taxation

We extend the discussion of redistributive politics across electoral systems to allow for taxation to be distortionary. We allow politicians to choose any tax rate between zero and unity and then redistribute the money collected. We build on the model put forward by Myerson (1993) and Lizzeri and Persico (2001 and 2005) to show that the use of distortionnary taxation can be understood as an analysis of the trade-o¤ between e¢ ciency and targetability. We derive the equilibrium taxes and redistribution schemes with distortions. We show that the presence of distortions makes full taxation unattractive. We also derive the size of the government, the deadweight loss and inequality as a function of distortions. Keywords: Redistributive Politics, Distortionary Taxation JEL classi…cation: D72, D78, H23, H31 Erasmus Universiteit Rotterdam, Department of Economics –H8-11, Erasmus School of Economics and Business Economics, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands. Email: [email protected] yInstitut d’Economie Appliquée, HEC Montréal, CEPR and CIRPEE 3000 chemin de la Côte SainteCatherine, Montréal (Québec) H3T 2A7 Canada Email: [email protected]