Constitutional Design: Separation of Financing and Project Decision

Hans Gersbach, Volker Hahn () and Stephan Imhof ()
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Volker Hahn: CER-ETH - Center of Economic Research at ETH Zurich, Switzerland

No 09/109, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: We examine the provision of public projects under separate tax and subsidy rules. We find that tax rules separated from project cum subsidy decisions exhibit several advantages when incentive problems of the agenda-setter are taken into account. In particular, tax rules may prevent the proposal of inefficient projects which benefit only a small lobby group. We propose “redistribution efficiency” as a socially desirable property of proposals and find that tax rules always guarantee redistribution efficiency. We show that rules on subsidies combined with discretion regarding taxes always yield socially inferior proposals. Finally, tax rules induce the agenda-setter to look for potential improvements of public projects.

Keywords: constitutional design; provision of public projects; voting; taxes and subsidies (search for similar items in EconPapers)
JEL-codes: D72 H40 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2009-05
New Economics Papers: this item is included in nep-cdm, nep-pbe, nep-pol and nep-ppm
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Citations: View citations in EconPapers (1)

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