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Rent seeking and the excess burden of taxation

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  • Kahana, Nava
  • Klunover, Doron

Abstract

The social costs of rent seeking and the excess burden of taxation have been studied and evaluated independently. We show that, when rent seekers earn taxable income, there is interdependence between the two types of social losses. Rent seeking increases the excess burden of taxation under risk neutrality when leisure is non-inferior. We derive a condition for rent seeking to increase the excess burden of taxation under risk aversion. When rent seekers can earn taxable income, rent seeking is more socially costly than is inferred from contest models alone, because of an increased excess burden of taxation.

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  • Kahana, Nava & Klunover, Doron, 2014. "Rent seeking and the excess burden of taxation," European Journal of Political Economy, Elsevier, vol. 35(C), pages 158-167.
    • Handle: RePEc:eee:poleco:v:35:y:2014:i:c:p:158-167
    DOI: 10.1016/j.ejpoleco.2014.06.003
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    3. Arye L. Hillman & Heinrich W. Ursprung, 2016. "Where are the rent seekers?," Constitutional Political Economy, Springer, vol. 27(2), pages 124-141, June.
    4. repec:elg:eechap:15325_13 is not listed on IDEAS
    5. Arye Hillman & Ngo Van Long, 2017. "The social cost of contestable benefits," CIRANO Working Papers 2017s-11, CIRANO.

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    More about this item

    Keywords

    Rent seeking; Excess burden of taxation; Welfare cost of taxation; Size of government;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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