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We study political competition in an environment in which voters have private information about their preferences. Our framework covers models of income taxation, public-goods provision or publicly provided private goods. Politicians are vote-share-maximizers. They can propose any policy that is resource-feasible and incentive-compatible. They can also offer special favors to subsets of the electorate. We prove two main results. First, in a symmetric equilibrium, policies are surplus-maximizing and hence first-best Pareto-efficient. Second, there is a surplus-maximizing policy that wins a majority against any welfare-maximizing policy. Thus, in our model, policies that trade off equity and efficiency considerations are politically infeasible.

Tax competition between two governments who choose nonlinear income tax schedules to maximize the average utility of its residents when skills are unobservable and labor is perfectly mobile is examined. We show that there are no Nash equilibria in which there is a skill type that pays positive taxes to one country and whose utility is larger than the average utility in the other country or in which the lowest skilled are subsidized. We also show that it is possible for the most highly skilled to receive a net transfer funded by taxes on lower skilled individuals in equilibrium. These findings confirm the race-to-the-bottom thesis in this setting

We study Downsian competition in a Mirrleesian model of income taxation. The competing politicians may differ in competence. If politicians engage in vote-share maximization, the less competent politician's policy proposals are attractive to the minority of rich agents, whereas those of the competent politician are attractive to the majority of poor agents. The less competent politician wins with positive probability, which gives rise to a political failure in the sense of Besley and Coate (1998). Political failures are avoided if politicians maximize winning probabilities. Nevertheless, the two equilibria cannot be Pareto-ranked, the minority may be better off under vote-share maximization

The literature on public goods has shown that efficient outcomes are impossible if participation constraints have to be respected. This paper addresses the question whether they should be imposed. It asks under what conditions efficiency considerations justify that individuals are forced to pay for public goods that they do not value. It is shown that participation constraints are desirable if public goods are provided by a malevolent Leviathan. By contrast, with a Pigouvian planner, efficiency can be achieved. Finally, the paper studies the delegation of public goods provision to a profit-maximizing firm. This also makes participation constraints desirable.

Felix Bierbrauer gibt einen Überblick der Theorie optimaler Steuern. Der Schwerpunkt liegt auf der Weiterentwicklung dieser Theorie seit der Jahrtausendwende. Er stellt aber auch die konzeptionellen Grundlagen dar sowie die klassischen Resultate zur optimalen Besteuerung von Arbeitseinkommen, Kapitaleinkommen und Konsumausgaben. Die Theorie hat in den letzten Jahren eine quantitative Dimension hinzugewonnen, die es beispielsweise erlaubt, die Einkommensteuerzahlungen von Spitzenverdienern im Status quo und unter einem optimal gestalteten Einkommensteuertarif miteinander zu vergleichen. Die jüngere Literatur hat außerdem geklärt, unter welchen Bedingungen die Beschäftigungsaufnahme von Geringverdienern subventioniert werden sollte. Der New-Dynamic-Public-Finance-Ansatz hat ein neues und wichtiges Argument entwickelt, das für eine Besteuerung von Kapitaleinkommen spricht. Weitere Themen der jüngeren Literatur sind der Wettbewerb verschiedener Regierungen um leistungsfähige und mobile Steuerzahler sowie die Interdependenz von optimaler Steuerpolitik und optimal gestalteten Staatsausgaben.

We study how an optimal income tax and an optimal public-goods provision rule respond to preference and productivity shocks. A conventional Mirrleesian treatment is shown to provoke manipulations of the policy mechanism by individuals with similar interests. We therefore extend the Mirrleesian model so as to include a requirement of coalition-proofness. The main results are the following: first, the possibility of preference shocks yields a new set of collective incentive constraints. Productivity shocks have no such implication. Second, the optimal policy gives rise to a positive correlation between the public-goods provision level, the extent of redistribution and marginal tax rates.

The Mirrleesian model of income taxation restricts attention to simple allocation mechanism with no strategic interdependence, i.e., the optimal labor supply of any one individual does not depend on the labor supply of others. It has been argued by Piketty (1993) that this restriction is substantial because more sophisticated mechanisms can reach first-best allocations that are out of reach with simple mechanisms. In this paper, we assess the validity of Piketty's critique in an independent private values model. As a main result, we show that the optimal sophisticated mechanism is a simple mechanism, or, equivalently, a Mirrleesian income tax system.