Redistributive Politics with Distortionary Taxation

This paper proposes a …first step towards a positive theory of tax instruments. We present a model that extends models of redistributive politics by Myerson (1993) and Lizzeri and Persico (2001). Two politicians compete in terms of targeted redistributive promises …nanced through distortionary taxes. We solve for the case of both targetable and non-targetable taxes. We prove that there is an imperfect efficiency-targetability trade off on the tax side. Politicians prefer targetable taxes over non-targetable ones, especially when the latter are less efficient. Yet, targetable taxation is always used even when it is very inefficient compared to non-targetable taxes.