Regulation and Taxation: Analyzing Policy Interdependence

31 Pages Posted: 7 Nov 2005

See all articles by Walter Hettich

Walter Hettich

California State University, Fullerton - Department of Economics

Stanley L. Winer

Carleton University - School of Public Policy and Administration; Carleton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 2005

Abstract

The paper draws attention to the interdependence of regulation and taxation. We analyze the nature of policy equilibrium, as well as the implications of historically important political and economic shocks, for the joint use of the two policy instruments in a framework that embodies relationships common in the literature on political economy. Regulation is represented by barriers to entry created by the government for favored industries. Among the results are the following: the introduction of new methods of communication in politics, such as television advertising, leads to increased taxation of the average voter, lower business tax rates, greater entry barriers in private markets and greater resource use for campaign advertising, with the marginal cost of the new medium and the elasticity of supply in regulated industries playing crucial roles. Overall government size declines. The two additional shocks analyzed, namely growth in the labor force participation of women and increased off-shore production also have substantial consequences for tax rates as well as regulation. The paper concludes with a consideration of the efficiency of policy equilibrium and the analytical problems that arise in evaluating efficiency in such a context.

Keywords: regulation, taxation, policy interdependence, political advertising, efficiency of political equilibrium

JEL Classification: D78, H20, H21, K23, L50

Suggested Citation

Hettich, Walter and Winer, Stanley L., Regulation and Taxation: Analyzing Policy Interdependence (April 2005). Available at SSRN: https://ssrn.com/abstract=525802 or http://dx.doi.org/10.2139/ssrn.525802

Walter Hettich

California State University, Fullerton - Department of Economics ( email )

Fullerton, CA 92834
United States

Stanley L. Winer (Contact Author)

Carleton University - School of Public Policy and Administration ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada
613-520-2600 x2630 (Phone)
613-520-2551 (Fax)

HOME PAGE: http://www.carleton.ca/winer

Carleton University - Department of Economics ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada
613-520-2600 ex.2630 (Phone)
613-520-2551 (Fax)

HOME PAGE: http://www.carleton.ca/winer

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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