Tax differentiation, lobbying, and welfare

Luca Vittorio Angelo Colombo, Sandro Brusco, Umberto Galmarini

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

To what extent a taxing authority should be granted the power to impose different tax schedules to different groups of taxpayers? Although the policy maker aims at maximizing social welfare, her tax policy may be distorted by the lobbying activity of taxpayers. In this political environment we characterize the conditions under which social welfare can be increased by restricting the set of tax instruments available to the policy maker; i.e., the scope of tax differentiation. We show that full differentiation is more costly, in terms of welfare distortions, when the lobbies are asymmetric in size, while minimal differentiation is more costly when the tax bases are asymmetric across different groups.
Original languageEnglish
Pages (from-to)977-1006
Number of pages30
JournalSocial Choice and Welfare
Volume42
Publication statusPublished - 2014

Keywords

  • Political economy of taxation
  • Special interest groups
  • Tax complexity
  • Uniform/non-uniform taxation

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