Tax contracts, party bargaining, and government formation
We explore how tax contracts affect government formation and welfare of voters in a democracy with proportional elections, four parties and sincere voting. 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 and formation of the government which chooses tax rates, public-good provision, and perks. 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. In highly polarized societies, tax contracts can yield more moderate political outcomes. However, there exist circumstances in which tax contracts induce more extreme policies.
If 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.
References listed on IDEAS
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.:
- Gersbach Hans, 2012.
Review of Law & Economics,
De Gruyter, vol. 8(3), pages 823-851, December.
- Siddhartha Bandyopadhyay & Kalyan Chatterjee, 2006. "Coalition Theory and its Applications: A Survey," Economic Journal, Royal Economic Society, vol. 116(509), pages F136-F155, 02.
- Antonio Merlo & Arianna Degan, 2007.
"Do Voters Vote Sincerely?,"
2007 Meeting Papers
307, Society for Economic Dynamics.
- Arianna Degan & Antonio Merlo, 2007. "Do Voters Vote Sincerely?," NBER Working Papers 12922, National Bureau of Economic Research, Inc.
- 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.
- Degan, Arianna & Merlo, Antonio, 2007. "Do Voters Vote Sincerely?," CEPR Discussion Papers 6165, C.E.P.R. Discussion Papers.
- Siddhartha Bandyopadhyay & Mandar Oak, 2006.
"Coalition Governments in a Model of Parliamentary Democracy,"
2006.83, Fondazione Eni Enrico Mattei.
- Bandyopadhyay, Siddhartha & Oak, Mandar P., 2008. "Coalition governments in a model of parliamentary democracy," European Journal of Political Economy, Elsevier, vol. 24(3), pages 554-561, September.
- Feld, Lars P. & Schaltegger, Christoph A. & Schnellenbach, Jan, 2008. "On government centralization and fiscal referendums," European Economic Review, Elsevier, vol. 52(4), pages 611-645, May.
- Roland Bénabou, 2008. "Joseph Schumpeter Lecture Ideology," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 321-352, 04-05.
- Arianna Degan & Antonio Merlo, 2006. "Do Voters Vote Sincerely? Second Version," PIER Working Paper Archive 07-006, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 03 Jan 2007.
- Roberto Perotti & Massimo V. Rostagno & Gian-Maria Milesi-Ferretti, 2001.
"Electoral System and Public Spending,"
IMF Working Papers
01/22, International Monetary Fund.
- 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.
- Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
- 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, 2008. "Tax Contracts and Government Formation," CEPR Discussion Papers 7084, C.E.P.R. Discussion Papers.
- Abhinay Muthoo, .
"A Bargaining Model Based on the Commitment Tactic,"
Economics Discussion Papers
420, University of Essex, Department of Economics.
- Muthoo, Abhinay, 1992. "Revocable Commitment and Sequential Bargaining," Economic Journal, Royal Economic Society, vol. 102(411), pages 378-87, March.
- Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
- Antoni Cunyat, 2004. "The optimal degree of commitment in a negotiation with a deadline," Economic Theory, Springer, vol. 23(2), pages 455-465, January.
- repec:cup:cbooks:9780521894753 is not listed on IDEAS
- Fershtman Chaim & Seidmann Daniel J., 1993. "Deadline Effects and Inefficient Delay in Bargaining with Endogenous Commitment," Journal of Economic Theory, Elsevier, vol. 60(2), pages 306-321, August.
When requesting a correction, please mention this item's handle: RePEc:eee:matsoc:v:64:y:2012:i:2:p:173-192. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.