This thesis explores lobbying as an important political economy dimension of policymaking. It exploits theoretical, empirical, and numerical approaches and methods to investigate the possibilities of engaging in costly lobbying and how lobbying by special interests affects the setting of minimum wage and small business tax rates. The theoretical modeling relies on the common agency framework - a situation with multiple principals who are simultaneously and non-cooperatively interacting with a single agent - of public policy lobbying and a simpler principal agent model. Empirical analysis employs panel data regression methods in the context of Canadian provinces to identify causal relationship. Both minimum wage and small business taxation invite a considerable amount of activity from various special interest groups in Canada, which engage in lobbying for a policy stance more favorable to their members.
After providing a brief overview of lobbying issues and literature in the first chapter, in the second one I show that initial lobbying cost can be a clear entry barrier, that lobbying competition can have properties of a high-stakes game and that lobbying can take place simply to preserve the status quo and not lose ground. In the pure rivalry sense, to not allow the opponent to gain ground in the policy arena. In the third chapter, I formulate a model of minimum wage determination based on the common agency lobbying framework to evaluate how the competition for political influence between unionized workers and firm owners affects the minimum wage determination. A binding minimum wage is a function of the policymaker's political ideology, the labor demand elasticity and the skill composition of union members. Specifically, when the elasticity of labor demand is large, the benefit of lobbying against (for) an increase in the minimum wage is greater since a potential minimum wage increase has a larger negative (positive) effect on firms' (unionized workers') income. Lobbying is successful in inducing the policymaker to set the minimum wage in accordance with her political preference; a more business (labor) friendly policymaker reduces (increases) the minimum wage. However, lobbying can also induce the policymaker to go against its ideological preference. Empirical analysis on a panel data for ten Canadian provinces over the 1965-2013 period gives considerable support for theoretical predictions. Preferred panel data regression specifications, controlling for unobserved province and year effects, and various province specific, time varying factors, indicate that real minimum wage decreases in skill-adjusted union density and a measure of political ideology, and increases with technological progress. Greater labor demand elasticity reinforces the influence of political ideology in the presence of lobbying. In the fourth chapter, I focus on the issue of small business tax determination and the effect of lowering its rate on income inequality. In Canada, where the small business income tax rate is considerably lower than the top individual rate, higher income individuals are able to reduce their personal taxes by retaining and shifting income via privately owned small businesses. Therefore, because the small business owners benefit from an increasing difference between the small business and top individual tax rates, I show using a principal-agent model that by lobbying as a special interest group they can always `buy' a lower corporate tax rate from the government. However, a lower business income tax, relative to a given personal income tax rate, is not income inequality neutral and unambiguously increases the income share of the highest earning individuals in the economy, specifically those who own small corporations. / Thesis / Doctor of Philosophy (PhD)
| Identifer | oai:union.ndltd.org:mcmaster.ca/oai:macsphere.mcmaster.ca:11375/21245 |
| Date | January 2017 |
| Creators | Lesica, Josip |
| Contributors | Han, Seungjin, Economics |
| Source Sets | McMaster University |
| Language | English |
| Detected Language | English |
| Type | Thesis |
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