IDEAS home Printed from https://ideas.repec.org/a/eee/matsoc/v64y2012i2p173-192.html
   My bibliography  Save this article

Tax contracts, party bargaining, and government formation

Author

Listed:
  • Gersbach, Hans
  • Schneider, Maik T.

Abstract

We explore how tax contracts affect government formation and welfare of voters in a democracy with proportional elections, four parties and sincere voting. A tax contract specifies a range of tax rates a party is committed to if in government. We develop a new model of party competition and formation of the government which chooses tax rates, public-good provision, and perks. We show that the introduction of tax contracts has two effects: a perks effect and a policy-shift effect. The former plays a central role in societies with a low degree of political polarization, where it tends to reduce politicians’ perks. In highly polarized societies, tax contracts can yield more moderate political outcomes. However, there exist circumstances in which tax contracts induce more extreme policies.

Suggested Citation

  • Gersbach, Hans & Schneider, Maik T., 2012. "Tax contracts, party bargaining, and government formation," Mathematical Social Sciences, Elsevier, vol. 64(2), pages 173-192.
    • Handle: RePEc:eee:matsoc:v:64:y:2012:i:2:p:173-192
    DOI: 10.1016/j.mathsocsci.2012.04.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165489612000406
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.mathsocsci.2012.04.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Antoni Cunyat, 2004. "The optimal degree of commitment in a negotiation with a deadline," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 23(2), pages 455-465, January.
    2. Gersbach Hans, 2012. "Contractual Democracy," Review of Law & Economics, De Gruyter, vol. 8(3), pages 823-851, December.
    3. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 269-304, June.
    4. Arianna Degan & Antonio Merlo, 2006. "Do Voters Vote Sincerely?," PIER Working Paper Archive 06-008, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    5. Mueller,Dennis C., 2003. "Public Choice III," Cambridge Books, Cambridge University Press, number 9780521894753.
    6. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    7. Muthoo, Abhinay, 1992. "Revocable Commitment and Sequential Bargaining," Economic Journal, Royal Economic Society, vol. 102(411), pages 378-387, March.
    8. Bandyopadhyay, Siddhartha & Oak, Mandar P., 2008. "Coalition governments in a model of parliamentary democracy," European Journal of Political Economy, Elsevier, vol. 24(3), pages 554-561, September.
    9. Gian Maria Milesi-Ferretti & Roberto Perotti & Massimo Rostagno, 2002. "Electoral Systems and Public Spending," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 609-657.
    10. Muthoo, Abhinay, 1996. "A Bargaining Model Based on the Commitment Tactic," Journal of Economic Theory, Elsevier, vol. 69(1), pages 134-152, April.
    11. Siddhartha Bandyopadhyay & Kalyan Chatterjee, 2006. "Coalition Theory and its Applications: A Survey," Economic Journal, Royal Economic Society, vol. 116(509), pages 136-155, February.
    12. Gersbach, Hans & Schneider, Maik T., 2012. "Tax contracts and elections," European Economic Review, Elsevier, vol. 56(7), pages 1461-1479.
    13. Stephen Ansolabehere & James M. Snyder & Aaron B. Strauss & Michael M. Ting, 2005. "Voting Weights and Formateur Advantages in the Formation of Coalition Governments," American Journal of Political Science, John Wiley & Sons, vol. 49(3), pages 550-563, July.
    14. Roland Bénabou, 2008. "Joseph Schumpeter Lecture Ideology," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 321-352, 04-05.
    15. Arianna Degan & Antonio Merlo, 2006. "Do Voters Vote Sincerely? Second Version," PIER Working Paper Archive 07-006, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 03 Jan 2007.
    16. Fershtman Chaim & Seidmann Daniel J., 1993. "Deadline Effects and Inefficient Delay in Bargaining with Endogenous Commitment," Journal of Economic Theory, Elsevier, vol. 60(2), pages 306-321, August.
    17. Feld, Lars P. & Schaltegger, Christoph A. & Schnellenbach, Jan, 2008. "On government centralization and fiscal referendums," European Economic Review, Elsevier, vol. 52(4), pages 611-645, May.
    18. Gersbach, Hans & Schneider, Maik, 2008. "Tax Contracts and Government Formation," CEPR Discussion Papers 7084, C.E.P.R. Discussion Papers.
    19. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
    20. Agnès Bénassy-Quéré & Nicolas Gobalraja & Alain Trannoy, 2007. "Tax and public input competition [‘Tax competition and economic geography’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 22(50), pages 386-430.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fehrler, Sebastian & Fischbacher, Urs & Schneider, Maik T., 2016. "Who Runs? Honesty and Self-Selection into Politics," IZA Discussion Papers 10258, Institute of Labor Economics (IZA).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gersbach, Hans & Schneider, Maik T. & Tejada, Oriol, 2019. "Coalition preclusion contracts and moderate policies," Games and Economic Behavior, Elsevier, vol. 114(C), pages 28-46.
    2. Gersbach, Hans & Schneider, Maik, 2008. "Tax Contracts and Government Formation," CEPR Discussion Papers 7084, C.E.P.R. Discussion Papers.
    3. Stanley L. Winer & George Tridimas & Walter Hettich, 2007. "Social Welfare and Collective Goods Coercion in Public Economics," Carleton Economic Papers 07-03, Carleton University, Department of Economics.
    4. Benoît Le Maux, 2009. "Governmental behavior in representative democracy: a synthesis of the theoretical literature," Public Choice, Springer, vol. 141(3), pages 447-465, December.
    5. Stefan Voigt, 2011. "Positive constitutional economics II—a survey of recent developments," Public Choice, Springer, vol. 146(1), pages 205-256, January.
    6. Lars Feld, 2014. "James Buchanan’s theory of federalism: from fiscal equity to the ideal political order," Constitutional Political Economy, Springer, vol. 25(3), pages 231-252, September.
    7. Krishanu Karmakar & Jorge Martinez-Vazquez, 2014. "Fiscal Competition versus Fiscal Harmonization: A Review of the Arguments," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1431, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    8. Gersbach, Hans & Schneider, Maik T., 2012. "Tax contracts and elections," European Economic Review, Elsevier, vol. 56(7), pages 1461-1479.
    9. David E. Wildasin, 2005. "Fiscal Competition," Working Papers 2005-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
    10. Stanley L. Winer & George Tridimas & Walter Hettich, 2008. "Social Welfare and Coercion in Public Finance," CESifo Working Paper Series 2482, CESifo.
    11. Sandy Fréret & Denis Maguain, 2017. "The effects of agglomeration on tax competition: evidence from a two-regime spatial panel model on French data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(6), pages 1100-1140, December.
    12. Tidiane Ly, 2018. "Sub-metropolitan tax competition with household and capital mobility," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(5), pages 1129-1169, October.
    13. Zodrow, George R, 2003. "Tax Competition and Tax Coordination in the European Union," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(6), pages 651-671, November.
    14. Juan Tang & Fangming Qin, 2022. "Analyzing the impact of local government competition on green total factor productivity from the factor market distortion perspective: based on the three stage DEA model," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(12), pages 14298-14326, December.
    15. Matthieu Leprince & Sonia Paty & Emmanuelle Reulier, 2005. "Choix d'imposition et interactions spatiales entre collectivités locales. Un test sur les départements français," Recherches économiques de Louvain, De Boeck Université, vol. 71(1), pages 67-93.
    16. Teresa Garcia-Milà & Therese J. McGuire, 2001. "Tax incentives and the city," Economics Working Papers 631, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 2001.
    17. George R. Zodrow, 2019. "Intrajurisdictional Capitalization and the Incidence of the Property Tax," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 16, pages 489-522, World Scientific Publishing Co. Pte. Ltd..
    18. Kokovin Sergey & Zhelobodko Evgeniy, 2004. "Leviathanian Fiscal Competition in Heterogeneous Country," EERC Working Paper Series 01-219e, EERC Research Network, Russia and CIS.
    19. Francisco J. Delgado & Santiago Lago-Peñas & Matías Mayor, 2015. "On The Determinants Of Local Tax Rates: New Evidence From Spain," Contemporary Economic Policy, Western Economic Association International, vol. 33(2), pages 351-368, April.
    20. Lars P. Feld & Horst Zimmermann & Thomas Döring, 2003. "Föderalismus, Dezentralität und Wirtschaftswachstum," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 72(3), pages 361-377.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:matsoc:v:64:y:2012:i:2:p:173-192. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505565 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.