Regulation Versus Taxation

Alberto Alesina and Francesco Passarelli

No 16413, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study which policy tool and at what level a majority chooses in order to reduce activities with negative externalities. We consider three instruments: a rule, that sets an upper limit to the activity which produces the negative externality, a quota that forces a proportional reduction of the activity, and a proportional tax on it. For all instruments the majority chooses levels which are too restrictive when the activity is performed mainly by a small fraction of the population, and when costs for reducing activities or paying taxes are sufficiently convex. Also a majority may prefer an instrument different than what a social planner would choose; for instance a rule when the social planner would choose a tax.

JEL-codes: D62 D72 D78 H23 (search for similar items in EconPapers)
Date: 2010-09
Note: POL
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Citations: View citations in EconPapers (11)

Published as Alesina, Alberto & Passarelli, Francesco, 2014. "Regulation versus taxation," Journal of Public Economics, Elsevier, vol. 110(C), pages 147-156.

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