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A Dynamic theory of electoral competition

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  • Battaglini, Marco

Abstract

We present a dynamic model of electoral competition to study the determinants of fiscal policy. In each period, two parties choose electoral platforms to maximize the expected number of elected representatives. The electoral platform includes public expenditure, redistributive transfers, the tax rate and the level of public debt. Voters cast their vote after seeing the platforms and elect representatives according to a majoritarian winner take all system. The level of debt, by affecting the budget constraint in future periods, creates a strategic linkage between electoral cycles. We characterize the Markov equilibrium of this game when public debt is the state variable, and study how Pareto efficiency depends on the electoral rule and the underlying fundamentals of the economy.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8633.

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Date of creation: Nov 2011
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Handle: RePEc:cpr:ceprdp:8633

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  1. Marco Battaglini & Stephen Coate, 2008. "A Dynamic Theory of Public Spending, Taxation, and Debt," American Economic Review, American Economic Association, vol. 98(1), pages 201-36, March.
  2. Jinhui Bai & Roger Lagunoff, 2008. "On the 'Faustian' Dynamics of Policy and Political Power," Working Papers, Georgetown University, Department of Economics gueconwpa~08-08-02, Georgetown University, Department of Economics.
  3. Jinhui H. Bai & Ruediger Bachmann, 2010. "Government Purchases Over the Business Cycle: the Role of Heterogeneity and Wealth Bias in Political Decision Making," 2010 Meeting Papers 621, Society for Economic Dynamics.
  4. John Duggan & Tasos Kalandrakis, 2007. "Dynamic Legislative Policy Making," Wallis Working Papers, University of Rochester - Wallis Institute of Political Economy WP45, University of Rochester - Wallis Institute of Political Economy.
  5. Marco Battaglini & Salvatore Nunnari & Thomas Palfrey, 2012. "The Free Rider Problem: a Dynamic Analysis," NBER Working Papers 17926, National Bureau of Economic Research, Inc.
  6. Ruediger Bachmann & Jinhui Bai, 2010. "Government Purchases Over the Business Cycle: the Role of Economic and Political Inequality," NBER Working Papers 16247, National Bureau of Economic Research, Inc.
  7. Coughlin, Peter & Nitzan, Shmuel, 1981. "Electoral outcomes with probabilistic voting and Nash social welfare maxima," Journal of Public Economics, Elsevier, vol. 15(1), pages 113-121, February.
  8. Battaglini, Marco & Nunnari, Salvatore & Palfrey, Thomas, 2011. "Legislative bargaining and the dynamics of public investment," Discussion Papers, Research Unit: Market Behavior SP II 2011-205, Social Science Research Center Berlin (WZB).
  9. Pierre Yared, 2010. "Politicians, Taxes and Debt," Review of Economic Studies, Oxford University Press, vol. 77(2), pages 806-840.
  10. Torsten Persson & Guido Tabellini, 2004. "Constitutional Rules and Fiscal Policy Outcomes," American Economic Review, American Economic Association, vol. 94(1), pages 25-45, March.
  11. Kalandrakis, Anastassios, 2004. "A three-player dynamic majoritarian bargaining game," Journal of Economic Theory, Elsevier, vol. 116(2), pages 294-322, June.
  12. Marco Battaglini & Salvatore Nunnari & Thomas R. Palfrey, 2010. "Political Institutions and the Dynamics of Public Investment," Carlo Alberto Notebooks, Collegio Carlo Alberto 142, Collegio Carlo Alberto.
  13. Daron Acemoglu & Michael Golosov & Aleh Tsyvinski, 2008. "Political Economy of Mechanisms," Econometrica, Econometric Society, Econometric Society, vol. 76(3), pages 619-641, 05.
  14. Assar Lindbeck & Jörgen Weibull, 1987. "Balanced-budget redistribution as the outcome of political competition," Public Choice, Springer, Springer, vol. 52(3), pages 273-297, January.
  15. David Austen-Smith, 2000. "Redistributing Income under Proportional Representation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(6), pages 1235-1269, December.
  16. Marina Azzimonti, 2009. "Barriers to investment in polarized societies," 2009 Meeting Papers, Society for Economic Dynamics 1233, Society for Economic Dynamics.
  17. Bard Harstad, 2012. "Climate Contracts: A Game of Emissions, Investments, Negotiations, and Renegotiations," Review of Economic Studies, Oxford University Press, vol. 79(4), pages 1527-1557.
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Cited by:
  1. César Martinelli & John Duggan, 2014. "The Political Economy of Dynamic Elections: A Survey and Some New Results," Working Papers, Centro de Investigacion Economica, ITAM 1403, Centro de Investigacion Economica, ITAM.
  2. Jean Guillaume Forand & John Duggan, 2013. "Markovian Elections," Working Papers 1305, University of Waterloo, Department of Economics, revised Oct 2013.
  3. Alexandre B. Cunha & Emanuel Ornelas, 2014. "Political Competition and the Limits of Political Compromise," CEP Discussion Papers dp1263, Centre for Economic Performance, LSE.
  4. Tetsuo Ono, 2014. "Growth, Unemployment, and Fiscal Policy: A Political Economy Analysis," Discussion Papers in Economics and Business 14-30, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  5. Jean Guillaume Forand & John Duggan, 2014. "Markovian Elections," 2014 Meeting Papers, Society for Economic Dynamics 153, Society for Economic Dynamics.

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