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On the Possibility of Political Change – Outcomes in Between Local and Global Equilibria

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Abstract

We study voting over education subsidies where poor individuals may be excluded and the rich may chose private alternatives. With plausible changes of the standard game we show that this problem typically has multiple equilibria; one with low taxes, many excluded, and many in private schooling; another with high taxes, everyone in schooling, and few choosing the private alternative. Shifts between these equilibria can only happen through jumps in policy, not through gradual change. The method we develop identifies the global, as well as all local majority rule equilibria, and it characterizes "stability regions" around each local equilibrium. Introducing costs into the political system can make the local equilibria the globally stable outcome which, for example, implies that identical countries with different starting points could end up with completely different redistributive systems. Outcomes change in intuitive ways with the parameters and several insights with respect to the possibilities of political change seem general for problems of redistribution with excludability.

Suggested Citation

  • Olovsson, Conny & Roine, Jesper, 2007. "On the Possibility of Political Change – Outcomes in Between Local and Global Equilibria," SSE/EFI Working Paper Series in Economics and Finance 654, Stockholm School of Economics, revised 15 Mar 2007.
  • Handle: RePEc:hhs:hastef:0654
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    1. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
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    4. Howard R. Bowen, 1943. "The Interpretation of Voting in the Allocation of Economic Resources," The Quarterly Journal of Economics, Oxford University Press, vol. 58(1), pages 27-48.
    5. Jesper Roine, 2006. "Downsian Competition When No Policy is Unbeatable," International Journal of Game Theory, Springer;Game Theory Society, vol. 34(2), pages 273-284, August.
    6. Alos-Ferrer, Carlos & Ania, Ana B., 2001. "Local equilibria in economic games," Economics Letters, Elsevier, vol. 70(2), pages 165-173, February.
    7. Barzel, Yoram, 1973. "Private Schools and Public School Finance," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 174-186, Jan.-Feb..
    8. Epple, Dennis & Romano, Richard E., 1996. "Ends against the middle: Determining public service provision when there are private alternatives," Journal of Public Economics, Elsevier, vol. 62(3), pages 297-325, November.
    9. Grandmont, Jean-Michel, 1978. "Intermediate Preferences and the Majority Rule," Econometrica, Econometric Society, vol. 46(2), pages 317-330, March.
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    11. James Buchanan, 1970. "Notes for an Economic theory of socialism," Public Choice, Springer, vol. 8(1), pages 29-43, March.
    12. Raquel Fernandez & Richard Rogerson, 1995. "On the Political Economy of Education Subsidies," Review of Economic Studies, Oxford University Press, vol. 62(2), pages 249-262.
    13. N/A, 1970. "Note," Review of Radical Political Economics, Union for Radical Political Economics, vol. 2(4), pages 1-1, October.
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    More about this item

    Keywords

    political economy; political equilibrium; voting; redistribution; education subsidies; local equilibrium; non-median voter equilibrium;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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