Monday, April 6, 2009

Tax political contributions

It is now pretty obvious that the US political system where political candidates have to raise their campaign funds from influence peddlers (aka political action committees) is at least not optimal if not disastrous. But solutions to get out of this mess are difficult to find, none the least because those that can make change happen are those that are the most interested in the status quo. Yet, this not lower the interest in studying this problem, the incentives at play and various policy proposals.

Christopher Cotton looks at an interesting aspect: should we cap contributions or tax them? Like in many situations where it is optimal to have less of some quantity, it should not be a surprise that taxing is the optimal strategy, at least compared to rationing. What is more interesting is that Cotton shows that the contribution cap is optimal from the point of view of the politician. In other words, even if a consensus could be obtained that political contributions need to be reigned in, the policy outcome would still be one that is suboptimal and favoring politicians. We are screwed.

1 comment:

Anonymous said...

Former Sloan Fellow and economic guru Danny L. McDaniel said during a recent TV interview:"What is the difference between a campaign contribution and a bribe?" I never thought of it that way before.

Greg Taylor
Pacific Palisade, California