Dynamic Mirrlees Taxation under Political Economy Constraints

Daron Acemoglu, Mikhail Golosov, Aleh Tsyvinski

Research output: Contribution to journalArticlepeer-review

25 Scopus citations

Abstract

We study the structure of non-linear taxes in a dynamic economy subject to political economy problems. In contrast to existing literature, taxes are set by a self-interested politician, without any commitment power, who is partly controlled by the citizens. We prove that: (1) a version of the revelation principle applies; and (2) the provision of incentives to politicians can be separated from the provision of incentives to individuals. Using these results, we provide conditions under which distortions created by political economy problems persist or disappear. We then extend these results to environments with partially benevolent governments and potential ex post conflict among the citizens.

Original languageEnglish (US)
Pages (from-to)841-881
Number of pages41
JournalReview of Economic Studies
Volume77
Issue number3
DOIs
StatePublished - Jul 2010

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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