Earmarked Taxation: Welfare versus Political Support
CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
SFB 303 Working Paper No. A - 594, CESifo Working Paper Series No. 207
Compared with the traditional public-finance approach of a monolithic fully informed planner, earmarking of taxation is less likely to be optimal if a principal-agent setting is considered, where taxing and spending are performed by two separate agents which are monitored by the parliament. We assume that the parliament either maximizes welfare or expected votes. Vote maximizers are more inclined to choose earmarking, but at the price of inefficiently high costs.
Number of Pages in PDF File: 35
Keywords: Earmarking, efficient taxation, asymmetric information
JEL Classification: H21, D82working papers series
Date posted: March 20, 2000
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