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Corporate Lobbying and Commitment Failure in Capital Taxation

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  • Nicolas Marceau
  • Michael Smart

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.
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  • Nicolas Marceau & Michael Smart, 2003. "Corporate Lobbying and Commitment Failure in Capital Taxation," American Economic Review, American Economic Association, vol. 93(1), pages 241-251, March.
    • Handle: RePEc:aea:aecrev:v:93:y:2003:i:1:p:241-251
    Note: DOI: 10.1257/000282803321455241
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    Cited by:

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    3. Börner, Kira, 2004. "Political Economy Reasons for Government Inertia: The Role of Interest Groups in the Case of Access to Medicines," Discussion Papers in Economics 313, University of Munich, Department of Economics.
    4. John A. List & Daniel M. Sturm, 2006. "How Elections Matter: Theory and Evidence from Environmental Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1249-1281.
    5. Marius Brülhart & Marko Koethenbuerger & Matthias Krapf & Raphaël Parchet & Kurt Schmidheiny & David Staubli, 2024. "Competition, Harmonization and Redistribution: Corporate Taxes in Switzerland," NBER Chapters, in: Policy Responses to Tax Competition, National Bureau of Economic Research, Inc.
    6. Dino Falaschetti, 2004. "Can Voting Reduce Welfare? Evidence from the US Telecommunications Sector," Public Economics 0401009, University Library of Munich, Germany.
    7. Besley, Timothy & Ghatak, Maitreesh, 2010. "Property Rights and Economic Development," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4525-4595, Elsevier.
    8. Boerner, Kira, 2005. "Having Everyone in the Boat May Sink it - Interest Group Involvement and Policy Reforms," Discussion Papers in Economics 730, University of Munich, Department of Economics.
    9. Dino Falaschetti, 2008. "Can Lobbying Prevent Anticompetitive Outcomes? Evidence On Consumer Monopsony In Telecommunications," Journal of Competition Law and Economics, Oxford University Press, vol. 4(4), pages 1065-1096.
    10. David E. Wildasin, 2006. "Global Competition for Mobile Resources: Implications for Equity, Efficiency and Political Economy," CESifo Economic Studies, CESifo Group, vol. 52(1), pages 61-110, March.
    11. Boadway, Robin & Tremblay, Jean-François, 2012. "Reassessment of the Tiebout model," Journal of Public Economics, Elsevier, vol. 96(11), pages 1063-1078.
    12. Christian At, 2015. "Shareholder versus Stakeholder Protection and Interest-Group Politics," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(3), pages 478-492, September.
    13. Lucian A. Bebchuk & Zvika Neeman, 2010. "Investor Protection and Interest Group Politics," The Review of Financial Studies, Society for Financial Studies, vol. 23(3), pages 1089-1119, March.
    14. Dino Falaschetti, 2004. "Can Voting Reduce Welfare? Evidence from the US Telecommunications Sector," Public Economics 0401006, University Library of Munich, Germany.
    15. Josip Lesica, 2018. "Lobbying For Minimum Wages," Economic Inquiry, Western Economic Association International, vol. 56(4), pages 2027-2057, October.
    16. Raymond G. Batina & Gregmar I. Galinato, 2017. "The Spillover Effects of Good Governance in a Tax Competition Framework with a Negative Environmental Externality," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(4), pages 701-724, August.
    17. Robin Boadway & Jean-François Tremblay, 2003. "Public Economics and Startup Entrepreneurs," CESifo Working Paper Series 877, CESifo.
    18. Ian A. Lange & Sarah Polborn, 2012. "Can Lobbying Encourage Abatement? Designing a New Policy Instrument," CESifo Working Paper Series 3760, CESifo.
    19. Christian At, 2015. "Shareholder vs. Stakeholder Protection and Interest Group Politics," Post-Print halshs-01308188, HAL.
    20. Dutta, Rohan & Levine, David K. & Modica, Salvatore, 2018. "Damned if you do and damned if you don't: Two masters," Journal of Economic Theory, Elsevier, vol. 177(C), pages 101-125.
    21. Dino Falaschetti, 2003. "Voter Turnout, Regulatory Commitment, and Capital Accumulation: Evidence from the US Telecommunications Sector," Microeconomics 0311002, University Library of Munich, Germany.
    22. Stanley L. Winer & Walter Hettich, 2002. "The Political Economy of Taxation: Positive and Normative Analysis when Collective Choice Matters," Carleton Economic Papers 02-11, Carleton University, Department of Economics, revised 2004.

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