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Political Competition within and between Parties: An Application to Environmental Policy

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  • Cremer, Helmuth
  • De Donder, Philippe
  • Gahvari, Firouz

Abstract

This paper presents a political economy model that is consistent with the low rate of emission taxes in the U.S., as well as the fact that neither Democrats nor Republicans propose to increase them. The voters differ according to their wage and capital incomes. They vote over the emission tax rate and a budgetary rule that specifies how to redistribute the tax proceeds. The political competition is modeled á la Roemer [Roemer, J., 2001. Political Competition: Theory and Applications. Harvard University Press] where the two parties care for the policies they propose as well as the probability of winning; the equilibrium solution concept is the Party Unanimity Nash Equilibrium (PUNE). We calibrate the model using U.S. data and compute the PUNEs numerically. Two types of PUNEs emerge. In one, reflecting the preferences of the militants in the two parties, equilibrium is characterized by both parties proposing a very huge tax rate, with Democrats typically beating the Republicans. In the other, dictated more by the concerns of the opportunists who care most about winning elections, both offer subsidies and both have a chance to win the election.

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Bibliographic Info

Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 358.

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Date of creation: Jul 2005
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Publication status: Published in Journal of Public Economics, vol. 92, n°3, avril 2008, p. 532-547.
Handle: RePEc:ide:wpaper:704

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References

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  1. Bos, Dieter, 2000. "Earmarked taxation: welfare versus political support," Journal of Public Economics, Elsevier, vol. 75(3), pages 439-462, March.
  2. Cremer, Helmuth & De Donder, Philippe & Gahvari, Firouz, 2004. "Political Sustainability and the Design of Environmental Taxes," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
  3. John Roemer, 2003. "The Democratic Political Economy Of Progressive Income Taxation," Working Papers 9711, University of California, Davis, Department of Economics.
  4. Levy, Gilat, 2004. "A model of political parties," Journal of Economic Theory, Elsevier, vol. 115(2), pages 250-277, April.
  5. Massimo Filippini, 1999. "Swiss residential demand for electricity," Applied Economics Letters, Taylor and Francis Journals, vol. 6(8), pages 533-538.
  6. Cremer, Helmuth & De Donder, Philippe & Gahvari, Firouz, 2005. "Political competition within and between parties: an application to environmental policy," CEPR Discussion Papers 5228, C.E.P.R. Discussion Papers.
  7. Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 2003. "Environmental taxes with heterogeneous consumers: an application to energy consumption in France," Journal of Public Economics, Elsevier, vol. 87(12), pages 2791-2815, December.
  8. Helmuth Cremer & Philippe De Donder & Firouz Gahvari, 2004. "Taxes, Budgetary Rule and Majority Voting," Public Choice, Springer, vol. 119(3_4), pages 335-358, 06.
  9. Brett, Craig & Keen, Michael, 2000. "Political uncertainty and the earmarking of environmental taxes," Journal of Public Economics, Elsevier, vol. 75(3), pages 315-340, March.
  10. Fullerton, Don, 1991. "Reconciling Recent Estimates of the Marginal Welfare Cost of Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 302-08, March.
  11. James M. Poterba, 1991. "Tax Policy to Combat Global Warming: On Designing a Carbon Tax," NBER Working Papers 3649, National Bureau of Economic Research, Inc.
  12. Helmuth Cremer & Philippe De Donder & Firouz Gahvari, 2007. "Energy Taxes in Three Political Economy Models," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 32.
  13. E. Raphael Branch, 1993. "Short Run Income Elasticity of Demand for Residential Electricity Using Consumer Expenditure Survey Data," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 111-122.
  14. Marsiliani, Laura & Renstrom, Thomas I, 2000. "Time Inconsistency in Environmental Policy: Tax Earmarking as a Commitment Solution," Economic Journal, Royal Economic Society, vol. 110(462), pages C123-38, March.
  15. Laslier, Jean-Francois & Picard, Nathalie, 2002. "Distributive Politics and Electoral Competition," Journal of Economic Theory, Elsevier, vol. 103(1), pages 106-130, March.
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Citations

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Cited by:
  1. Potrafke, Niklas, 2010. "The growth of public health expenditures in OECD countries: Do government ideology and electoral motives matter?," Journal of Health Economics, Elsevier, vol. 29(6), pages 797-810, December.
  2. Niklas Potrafke, 2010. "Ideology and cultural policy," TWI Research Paper Series 49, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
  3. Vincent Anesi & Philippe De Donder, 2011. "Secondary issues and party politics: an application to environmental policy," Social Choice and Welfare, Springer, vol. 36(3), pages 519-546, April.
  4. Patrick Laurency & Dirk Schindler, 2011. "International Climate Agreements, Cost Reductions and Convergence of Partisan Politics," CESifo Working Paper Series 3591, CESifo Group Munich.
  5. Mechtel, Mario & Potrafke, Niklas, 2009. "Political Cycles in Active Labor Market Policies," MPRA Paper 22780, University Library of Munich, Germany, revised May 2010.
  6. Alberto F. Alesina & Francesco Passarelli, 2010. "Regulation Versus Taxation," NBER Working Papers 16413, National Bureau of Economic Research, Inc.
  7. Niklas Potrafke, 2011. "Does government ideology influence budget composition? Empirical evidence from OECD countries," Economics of Governance, Springer, vol. 12(2), pages 101-134, June.
  8. Fredriksson, Per G. & Wang, Le & Mamun, Khawaja A., 2011. "Are politicians office or policy motivated? The case of U.S. governors' environmental policies," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 241-253, September.
  9. Cremer, Helmuth & De Donder, Philippe & Gahvari, Firouz, 2005. "Political competition within and between parties: an application to environmental policy," CEPR Discussion Papers 5228, C.E.P.R. Discussion Papers.
  10. Christian Bjørnskov & Niklas Potrafke, 2009. "Political ideology and economic freedom across Canadian provinces," Working Papers CEB 09-054.RS, ULB -- Universite Libre de Bruxelles.
  11. Helmuth Cremer & Philippe De Donder & Firouz Gahvari, 2007. "Energy Taxes in Three Political Economy Models," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 32.
  12. Potrafke, Niklas, 2009. "Political cycles and economic performance in OECD countries: empirical evidence from 1951-2006," MPRA Paper 23751, University Library of Munich, Germany.

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