Optimal Representative Taxation, Information and Political Institutions

Abstract

"The paper formulates a normative theory of taxation that incorporates both economic structure and political institutions as essential elements. Such a theory has interesting parallels to optimal taxation, including large information requirements. We discuss solutions to the information problem in a competitive political economy. The answer appears to lie in a decentralized information gathering and policy process rather than in the development of simplified guidelines for central planners. The paper proposes a framework to examine the effects of decentralized decision making, imperfect political competition and political institutions on tax policy outcomes."