Lobbying and Efficiency under Imperfect Taxation (original) (raw)

Vertical tax competition and consumption externalities in a federation with lobbying

Journal of Public Economics, 2012

We consider a federation with two layers of government, in which Leviathan policy makers levy an excise tax on a consumption good that generates a negative externality and that is produced in an imperfectly competitive market. When both layers of government are allowed to tax, policy choices are affected also by vertical tax competition. In this setting, tax policy in general is not efficient. We then examine how special interest groups may influence tax policy by lobbying the policy makers. We find that, depending on market structure and on the level of the externality, lobbying can improve efficiency, and that tax-base sharing by two layers of government can be more efficient than taxation by a single layer.

ISSN: 1955-611XHeterogeneous Lobbying Efficiency ∗

2008

Firms are actively involved in the formation of policies. So far, the literature has focused on the relationship between exposure to the competition and the level of protection. The ability of lobbies to achieve a more favorable policy is then directly related to the reaction of their welfare to the policy. This monotonic relationship contradicts the idea that all lobbies do not have the same efficiency. Indeed, this efficiency cannot be uniquely driven by the exposure to competition. This paper proposes an original approach of the lobbying activity taking into account that lobbies ’ efficiency is heterogeneous. Just as there are some skilled and unskilled cards players. This paper highlights two types of efficiency, the passive and the active. First, according to the sensitivity of the government to the policy, two lobbies equally affected by the policy may pay different contributions to obtain the same protection level. Second, if the active efficiency is introduced, then two lobb...

Lobbying and Welfare in a Representative Democracy

The Review of Economic Studies, 2001

This paper studies the impact of lobbying on political competition and policy outcomes in a framework which integrates the citizen-candidate model of representative democracy with the menu-auction model of lobbying. Positive and normative issues are analysed. On the positive side, lobbying need have little or no effect on policy outcomes because voters can restrict the influence of lobbyists by supporting candidates with offsetting policy preferences. On the normative side, coordination failure among lobbyists can result in Pareto inefficient policy choices. In addition, by creating rents to holding office, lobbying can lead to ''excessive'' entry into electoral competition. 1. They also provide information to policy-makers. For a model of this form see Lohmann (1995).

Endogenous Lobbying, Second Version

SSRN Electronic Journal, 2000

In this paper we present a citizen-candidate model of representative democracy with endogenous lobbying. We find that lobbying induces policy compromise and always affects equilibrium policy outcomes. In particular, even though the policy preferences of lobbies are relatively extreme, lobbying biases the outcome of the political process toward the centre of the policy space, and extreme policies cannot emerge in equilibrium. Moreover, in equilibrium, not all lobbies participate in the policy-making process.

Inefficient equilibria in lobbying

Journal of Public Economics, 2001

Lobbying is often represented as a common agency game. Common agency games typically have multiple equilibria. One class of equilibria, called truthful, has been identified by Bernheim and Whinston [Quarterly Journal of Economics 1986;101(1):1-31]. In this paper, we identify another class of equilibria, which we call natural, in which each principal offers a positive contribution on at most one alternative. We run an experiment on a common agency game for which the two equilibria predict a different equilibrium alternative. The alternative predicted by the natural equilibrium is chosen in 65% of the matches, while the one predicted by the truthful equilibrium is chosen in less than 5% of the matches.

The Welfare Effects of Tax Competition Reconsidered: Politicians and Political Institutions

The Economic Journal, 2009

The views on the welfare effects of tax competition differ widely. Some see the fiscal externalities as the cause for underprovision of public goods, while others see tax competition as the means of reducing government inefficiencies. Using a comparative politics approach we show that tax competition among presidential-congressional democracies is typically welfare improving, while harmful among parliamentary democracies if under the latter public goods are sufficiently valued. The results hold when politicians seek re-election because of exogenous benefits of holding office. By contrast, when politicians hold office only to extract rents, tax competition is harmful if politicians are sufficiently patient.

Fiscal equalization and lobbying

International Tax and Public Finance, 2016

Interregional redistribution through tax-base equalization transfers is examined in a setting in which taxpayers, organized as lobby groups, influence policy making. With lobbying only at the local level on tax rates, social welfare maximization implies, ceteris paribus, high (low) equalization rates on the tax bases backed by the strong (weak) lobby groups. With lobbying also at the central level, equalization is distorted downward on all tax bases if the pressure groups are similar in terms of lobbying power. It is instead distorted downward (upward) on the bases backed by strong (weak) groups if they are highly heterogeneous. In the latter situation, a uniform equalization structure may perform better than a differentiated one.

Should tax bases overlap in a federation with lobbying?

2010

We examine the tax assignment problem in a federation with two layers of government sharing an elastic tax base, in which Leviathan policy makers levy an excise tax in an imperfectly competitive market and producers lobby for tax rate cuts. If the lobby of producers is very influential on policy makers, we find that taxation by both layers of government might be optimal, provided that the market of the taxed good is highly concentrated; otherwise, it is optimal to assign the power to tax only to one level of government. Taxation by both layers ...

Heterogeneous lobbying efficiency

2008

Firms are actively involved in the formation of policies. So far, the literature has focused on the relationship between exposure to the competition and the level of protection. The ability of lobbies to achieve a more favorable policy is then directly related to the reaction of their welfare to the policy. This monotonic relationship contradicts the idea that all lobbies do not have the same efficiency. Indeed, this efficiency cannot be uniquely driven by the exposure to competition. This paper proposes an original approach of the lobbying activity taking into account that lobbies' efficiency is heterogeneous. Just as there are some skilled and unskilled cards players. This paper highlights two types of efficiency, the passive and the active. First, according to the sensitivity of the government to the policy, two lobbies equally affected by the policy may pay different contributions to obtain the same protection level. Second, if the active efficiency is introduced, then two lobbies exhibiting the same sensitivity to the policy may obtain two different equilibrium policies.

Heterogeneous Lobbying Eciency

Firms are actively involved in the formation of policies. So far, the literature has focused on the relationship between exposure to the competition and the level of protection. The ability of lobbies to achieve a more favorable policy is then directly related to the reaction of their welfare to the policy. This monotonic relationship contradicts the idea that all lobbies do not have the same efficiency. Indeed, this efficiency cannot be uniquely driven by the exposure to competition. This paper proposes an original approach of the lobbying activity taking into account that lobbies' efficiency is heterogeneous. Just as there are some skilled and unskilled cards players. This paper highlights two types of efficiency, the passive and the active. First, according to the sensitivity of the government to the policy, two lobbies equally affected by the policy may pay different contributions to obtain the same protection level. Second, if the active efficiency is introduced, then two lobbies exhibiting the same sensitivity to the policy may obtain two different equilibrium policies.