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Laffer paradox, Leviathan, and Political Contest

Toshihiro Ihori and C.C. Yang
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Toshihiro Ihori: Faculty of Economics, University of Tokyo
C.C. Yang: Institute of Economics, Academia Sinica

No CIRJE-F-769, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: This paper considers a political contest model wherein self-interested politicians seek rents from the public budget, while general voters make political efforts to protest against politicians' rent seeking directly (for example, through voting in referendums such as the passage of Proposition 13) or indirectly (for example, through donating money to organized groups such as the National Taxpayer Union). We show that the political contest may ironically lead to the Laffer paradox; that is, rent-seeking politicians may intend to set the tax rate higher than the revenue-maximizing rate. For taming Leviathans, political protests may not be as effective as competition among governments.

Pages: 19pages
Date: 2010-10
New Economics Papers: this item is included in nep-cdm, nep-pbe and nep-pol
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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2010cf769

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