Tax Regimes and Special Interest Politics

In this paper a simple model of pubic-good provision is considered. The economy consists of two individuals (principals) who have fixed endowment in private good and a government (agent) that has the monopoly of political coercion. In such a model, if the government is benevolent, the choice of tax system (i.e. proportional, lump sum, etc) is irrelevant to the provision of the public good. On the other hand, in case the government is also a rent seeker, the choice of tax system becomes important. A uniform tax system that restricts the government's ability to redistribute income is superior from the point of view of individuals.