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On the (sequential) majority choice of public good size and location

  • Philippe De Donder

    ()

  • Michel Le Breton

    ()

  • Eugenio Peluso

    ()

In this paper, we lay the first building blocks of a positive theory of nation formation where national choices consist of the size and location of a public good. Individuals differ both in income and in their preferences for the public good location. Public expenditures are financed either by a lump sum tax or by a proportional income tax. We study both the simultaneous and the sequential determinations of the public good size and location. We show that, while the choice of the type of public good follows the traditional median logic, the majoritarian determination of the taxation rate need not coincide with the choice of a median income citizen. With lump sum financing, income heterogeneity plays no role and the sequential equilibrium consists of the median location together with the public good level most-preferred by the individual located at the median distance from the median. This policy bundle also constitutes an equilibrium with simultaneous voting in the special case of a uniform bivariate distribution of individuals' income and location. With proportional taxation, there is no policy equilibrium with simultaneous voting. We offer a complete characterization of the equations describing the sequential equilibrium in the general case and we show why and how our results depart from those obtained with the lump sum case. The public good level is lower than the one emerging under lump sum taxation when the income distribution is concave and when the correlation between individuals' income and location is positive but not perfect.

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File URL: http://hdl.handle.net/10.1007/s00355-012-0656-4
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Article provided by Springer in its journal Social Choice and Welfare.

Volume (Year): 39 (2012)
Issue (Month): 2 (July)
Pages: 457-489

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Handle: RePEc:spr:sochwe:v:39:y:2012:i:2:p:457-489
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  1. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1027-56, November.
  2. Baqir, Reza & Easterly, William & Alesina, Alberto, 1999. "Public Goods and Ethnic Divisions," Scholarly Articles 4551797, Harvard University Department of Economics.
  3. De Donder, Philippe & Le Breton, Michel & Peluso, Eugenio, 2010. "Majority Voting in Multidimensional Policy Spaces: Kramer-Shepsle versus Stackelberg," CEPR Discussion Papers 7646, C.E.P.R. Discussion Papers.
  4. Haimanko, Ori & Le Breton, Michel & Weber, Shlomo, 2005. "Transfers in a polarized country: bridging the gap between efficiency and stability," Journal of Public Economics, Elsevier, vol. 89(7), pages 1277-1303, July.
  5. DREZE, Jacques & LE BRETON, Michel & SAVVATEEV, Alexei & WEBER, Shlomo, 2007. "“Almost” subsidy-free spatial pricing in a multi-dimensional setting," CORE Discussion Papers 2007047, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Perroni, Carlo & Scharf, Kimberly A, 2001. "Tiebout with Politics: Capital Tax Competition and Constitutional Choices," Review of Economic Studies, Wiley Blackwell, vol. 68(1), pages 133-54, January.
  7. Federico Etro, 2006. "Political geography," Public Choice, Springer, vol. 127(3), pages 321-343, June.
  8. Alberto Alesina & Reza Baqir & Caroline Hoxby, 2000. "Political Jurisdictions in Heterogeneous Communities," NBER Working Papers 7859, National Bureau of Economic Research, Inc.
  9. Bolton, Patrick & Roland, Gerard, 1997. "The Breakup of Nations: A Political Economy Analysis," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1057-90, November.
  10. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, March.
  11. repec:hrv:faseco:4553034 is not listed on IDEAS
  12. Filippo Gregorini, 2009. "Political Geography and Income Inequalities," Working Papers 152, University of Milano-Bicocca, Department of Economics, revised Feb 2009.
  13. Banks, Jeffrey S. & Duggan, John & Le Breton, Michel, 2006. "Social choice and electoral competition in the general spatial model," Journal of Economic Theory, Elsevier, vol. 126(1), pages 194-234, January.
  14. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
  15. Philippe JEHIEL & Suzanne SCOTCHMER, 1997. "Free Mobility and the Optimal Number of Jurisdictions," Annales d'Economie et de Statistique, ENSAE, issue 45, pages 219-231.
  16. Jehiel, Philippe & Scotchmer, Suzanne, 2001. "Constitutional Rules of Exclusion in Jurisdiction Formation," Review of Economic Studies, Wiley Blackwell, vol. 68(2), pages 393-413, April.
  17. Michel Le Breton & Shlomo Weber, 2003. "The Art of Making Everybody Happy: How to Prevent a Secession," IMF Staff Papers, Palgrave Macmillan, vol. 50(3), pages 4.
  18. Le Breton, Michel & Weber, Shlomo, 2003. "The Art of Making Everybody Happy : How to Prevent a Secession," IDEI Working Papers 164, Institut d'Économie Industrielle (IDEI), Toulouse.
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