Working Paper: CEPR ID: DP5975
Authors: Benot Sy Crutzen; Nicolas Sahuguet
Abstract: 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-off between efficiency 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: Distortionary Taxation; Redistributive Politics
JEL Codes: D72; D78; H23; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax efficiency (H21) | higher tax rates (H29) |
| higher tax rates (H29) | greater government size (H11) |
| tax efficiency (H21) | greater government size (H11) |
| higher tax rates (H29) | increased distortion and potential welfare loss (H31) |
| tax efficiency (H21) | reduced welfare (I38) |
| tax efficiency (H21) | rising inequality (D31) |