Taxation of rent-seeking activities

We consider taxes on firms which engage in rent-seeking contests. The taxes can be on realized profits or on rent-seeking expenditures. The prize can be awarded to either the highest bidder, or to a firm with probability prop ortional to its share of total spending on lobbying. We find the conditions under which taxes do not reduce rent-seeking effort, generate tax revenue with no tax burden, and cause no reduction in the profits of firms. (C) 199 9 Elsevier Science S.A. All rights reserved.