Corporate Lobbying and Commitment Failure in Capital Taxation

17 Pages Posted: 22 Apr 2002

See all articles by Nicolas Marceau

Nicolas Marceau

Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi (CIRPEE)

Michael Smart

University of Toronto - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 2002

Abstract

This paper investigates the effects of lobbying by corporations when investments are irreversible and government cannot commit to tax policies. We show that industries which rely more heavily on sunk capital lobby more vigorously and are generally more successful in obtaining tax breaks. Thus lobbying can mitigate the capital levy problem. Nevertheless, these industries invest less in long-run equilibrium than more flexible ones. We then consider the effects of relaxing legal restrictions on corporate lobbying. When the deadweight costs of lobbying fall, taxes on sunk capital tend to fall, but political contributions may rise, as lobbyists compete more intensively for political favors. On balance, a ban of lobbying may therefore cause investment to rise or fall.

JEL Classification: H2

Suggested Citation

Marceau, Nicolas and Smart, Michael, Corporate Lobbying and Commitment Failure in Capital Taxation (February 2002). Available at SSRN: https://ssrn.com/abstract=305361

Nicolas Marceau

Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi (CIRPEE) ( email )

Ste-Foy, Quebec G1K 7P4
Canada

Michael Smart (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Institute for Policy Analysis
Toronto, Ontario M5S 3G7
Canada
416-978-5119 (Phone)
416-978-6713 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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