Tax Contracts and Government Formation
AbstractWe introduce tax contracts and examine how they affect government formation and welfare of voters in a democracy with proportional elections. 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 in which parties choose tax rates, public-good provision, and perks, and 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. If a society is highly polarized, tax contracts can yield more moderate political outcomes. However, there are also circumstances in which tax contracts induce more extreme policies.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7084.
Date of creation: Dec 2008
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Find related papers by JEL classification:
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-28 (All new papers)
- NEP-CDM-2009-02-28 (Collective Decision-Making)
- NEP-PBE-2009-02-28 (Public Economics)
- NEP-POL-2009-02-28 (Positive Political Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Siddhartha Bandyopadhyay & Kalyan Chatterjee, 2006. "Coalition Theory and its Applications: A Survey," Economic Journal, Royal Economic Society, vol. 116(509), pages F136-F155, 02.
- 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.
- Arianna Degan & Antonio Merlo, 2007. "Do Voters Vote Sincerely?," NBER Working Papers 12922, National Bureau of Economic Research, Inc.
- Antonio Merlo & Arianna Degan, 2007. "Do Voters Vote Sincerely?," 2007 Meeting Papers 307, Society for Economic Dynamics.
- Degan, Arianna & Merlo, Antonio, 2007. "Do Voters Vote Sincerely?," CEPR Discussion Papers 6165, C.E.P.R. Discussion Papers.
- Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
- Gian Maria Milesi-Ferretti & Roberto Perotti & Massimo Rostagno, 2002.
"Electoral Systems And Public Spending,"
The Quarterly Journal of Economics,
MIT Press, vol. 117(2), pages 609-657, May.
- Agnès Bénassy-Quéré & Nicolas Gobalraja & Alain Trannoy, 2007. "Tax and public input competition," Economic Policy, CEPR;CES;MSH, vol. 22, pages 385-430, 04.
- Gersbach, Hans & Schneider, Maik T., 2012. "Tax contracts, party bargaining, and government formation," Mathematical Social Sciences, Elsevier, vol. 64(2), pages 173-192.
- Gersbach, Hans & Schneider, Maik T., 2012.
"Tax contracts and elections,"
European Economic Review,
Elsevier, vol. 56(7), pages 1461-1479.
- Hans Gersbach & Maik T. Schneider, 2009. "Tax Contracts and Elections," CER-ETH Economics working paper series 09/123, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
- Gersbach, Hans & Schneider, Maik, 2012. "Tax Contracts and Elections," CEPR Discussion Papers 9054, C.E.P.R. Discussion Papers.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.