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Tax contracts and elections

  • Gersbach, Hans
  • Schneider, Maik T.

In this paper we examine the impact of tax contracts as a novel institution on elections, policies, and welfare. We consider a political game in which three parties compete to form the government and voters may behave strategically. Parties have policy preferences about the level of public-good provision and benefit from perks when in office. A government raises taxes for both purposes. We show that tax contracts yield moderate policies and lead to lower perks by avoiding the formation of grand coalitions in order to win government. Moreover, in polarized societies they unambiguously improve the welfare of the median voter.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 7 ()
Pages: 1461-1479

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:7:p:1461-1479
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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  2. Ignacio Ortuno-Ortin & Christian Schultz, 2005. "Public Funding of Political Parties," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(5), pages 781-791, December.
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  18. Gersbach, Hans & Schneider, Maik, 2008. "Tax Contracts and Government Formation," CEPR Discussion Papers 7084, C.E.P.R. Discussion Papers.
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