Regulation Versus Taxation [report]

Alberto Alesina, Francesco Passarelli
2010 unpublished
We study which policy tool and at what level a majority chooses in order to reduce activities with negative externalities. We consider three instruments: a rule, that sets an upper limit to the activity which produces the negative externality, a quota that forces a proportional reduction of the activity, and a proportional tax on it. For all instruments the majority chooses levels which are too restrictive when the activity is performed mainly by a small fraction of the population, and when
more » ... ation, and when costs for reducing activities or paying taxes are su¢ cently convex. Also a majority may prefer an instrument di¤erent than what a social planner would choose; for instance a rule when the social planner would choose a tax.
doi:10.3386/w16413 fatcat:7ilslhis7bdojgswbkssmthbz4