Taxes, budgetary rule and majority voting

Helmuth Cremer, Philippe De Donder, Firouz Gahvari

Research output: Contribution to journalArticlepeer-review

Abstract

This paper studies majority voting outcomes for a specific class of two-dimensional policies. One policy instrument influences efficiency and the other redistribution. Absent the political process, the two dimensions can be addressed separately. With a two dimensional vote, the two aspects will interact in a non-trivial way. The illustrative policy we consider, requires taxing an externality-generating good and determining a budgetary rule which specifies the proportions of the tax proceeds that go to wage earners and to capital owners. We show: First, a sequential vote wherein the tax rate is determined first and the budgetary rule second, always possesses an equilibrium and that this equilibrium is the median-endowed individual's most-preferred policy. Second, the reverse sequential choice implies that the median-endowed individual may, but need not, be decisive. Third, the "Shepsle procedure" also implies that the equilibrium is the policy most favored by the median individual. Fourth, this equilibrium constitutes, under certain circumstances, the Condorcet winner for the unrestricted simultaneous voting game.

Original languageEnglish (US)
Pages (from-to)335-358
Number of pages24
JournalPublic Choice
Volume119
Issue number3-4
DOIs
StatePublished - Jun 2004

ASJC Scopus subject areas

  • Sociology and Political Science
  • Economics and Econometrics

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