Political competition and Mirrleesian income taxation: A first pass

• We study political competition in a simple Mirrleesian model of income taxation.
• We focus on the welfare implications of political competition.
• We clarify the conditions under which equilibrium tax policies are Pareto-efficient.
• We also show the conditions under which political failures arise.

We study political competition in a simple Mirrleesian model of income taxation. The analysis is made tractable by exploiting the mechanism design formulation of the Mirrleesian problem. We consider basic variants of the Downsian model such as vote-share maximizing politicians, a winner-take-all system, and competition among politicians who differ in a quality dimension. We focus on the welfare implications of political competition and its implications for tax rates. In particular, we clarify the conditions under which equilibrium tax policies are Pareto-efficient and the conditions under which political failures in the sense of Besley and Coate (1998) arise.