Why do both left and right political parties typically propose progressive income taxation schemes in political competition? Analysis of this problem has been hindered by the two-dimensionality space of admissible tax policies: Nash equilibria in pure strategies of the usual political game generically fail to exist. A new equilibrium concept, based on the fact of factional conflict within parties, is introduced. Each party has incomplete preference orders on the strategy space, formed as the intersection of the complete preference orders of its factions. Nash equilibria of the two-party game, so construed, do exist and, in such equilibria, both parties propose progressive income taxation.
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Article provided by Econometric Society in its journal Econometrica.
Volume (Year): 67 (1999) Issue (Month): 1 (January) Pages: 1-20 Download reference. The following formats are available: HTML
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