Regulatory taxes avert monopolies AND IP flaws.
Barnett ‘5 [Andy and Bruce Yandle; 2005; Auburn University, American University of Sharjah; Clemson University, Political Economy Research Center; Handbook of Public Finance, “Regulation by Taxation,” Ch. 9] jchen
Our discussion of the double dividend provided by regulatory taxes was couched in the language of regulation theory. Politicians were described as auctioning taxes and loopholes to the highest political bidder and then having the resulting tax revenue to use in providing additional special interest benefits. Clearly, the evolved theory of regulation contains a number of positive components that may be related to taxation as regulation. To provide meaningful content to this statement, we must consider the elements that form the theory.
Public interest theory is the first element. Primarily based on a search for efficiency, the public interest theory asserts that when involved in political decisions, politicians shove aside their personal interests and are motivated primarily by a desire to maximize social welfare. Regulatory taxes will be used to correct market imperfections that result from monopoly power, incomplete information, the absence of property rights, or the inability of people to transact. Of course, designing efficient regulatory taxes requires detailed information about the demand and supply of the commodity or activity to be regulated. More often than not, special interest groups are pleased, if not anxious, to deliver the information to the politician. In the process, the human tendencies of politicians can override their primary public interest motivations. Capture theory steps in when public interest theory breaks down. This theory indicates that publicly interested politicians unwittingly are captured by the interests they serve. In effect, the regulated become the regulators.