Tax Rules

Hans Gersbach, Volker Hahn and Stephan Imhof ()

No 7831, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We examine the provision of public projects under 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 that benefit only a small lobby group. We propose ?redistribution efficiency? as a socially desirable property of proposals and find that tax rules always guarantee this kind of 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; Taxes and subsidies; Voting (search for similar items in EconPapers)
JEL-codes: D72 H40 (search for similar items in EconPapers)
Date: 2010-05
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