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Democratic Provision of Divisible Public Goods

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  • Hans Gersbach

Abstract

In this paper we examine the potential of democratic constitutions for the provision of divisible public goods in a large economy. Our main insights are as follows: When aggregate shocks are absent, the combination of the following rules yields first-best allocations: a supermajority rule, equal taxation, exemption of the agenda setter from taxation, and a ban on subsidies. In the presence of aggregate shocks to benefits or to costs of public-good provision, tax-sensitive majority rules, where the size of the required majority depends on the aggregate tax revenues, yield first-best allocations if a monotonicity condition is met. Finally, we explore the potential of first-best constitutions to induce voluntary participation by compensating agents belonging to the minority.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-02/cesifo1_wp2939.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2939.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_2939

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Keywords: democratic constitutions; tax-sensitive majority rules; constitutional rules; provision of public goods;

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  1. Aghion, Philippe & Alesina, Alberto & Trebbi, Francesco, 2004. "Endogenous Political Institutions," Scholarly Articles 4481498, Harvard University Department of Economics.
  2. Martin F. Hellwig, 2003. "Public-Good Provision with Many Participants," Review of Economic Studies, Wiley Blackwell, vol. 70(3), pages 589-614, 07.
  3. Hans Gersbach, 2009. "Democratic Mechanisms," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1436-1469, December.
  4. Hellwig, Martin F., 2005. "A utilitarian approach to the provision and pricing of excludable public goods," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 1981-2003, December.
  5. Aghion, Philippe & Bolton, Patrick, 2003. "Incomplete Social Contracts," Scholarly Articles 4554123, Harvard University Department of Economics.
  6. B�rd Harstad, 2005. "Majority Rules and Incentives," The Quarterly Journal of Economics, MIT Press, vol. 120(4), pages 1535-1568, November.
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