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Limits to citizens’ demand in a democracy

Author

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  • Santanu Gupta
  • Raghbendra Jha

    ()

Abstract

This paper examines how citizens decide on their reservation utilities (expectations), in a model with democratic institutions and majority rule. If all individuals have identical incomes, then political competition amongst citizens, to attract resources from the government brings reservation utilities of citizens down to zero. The same is not the case when individuals have different incomes, but it is the richest and the median income citizens who win in the process and tax resources are equally distributed between them. In a situation where the government is corrupt and siphons off a part of the tax revenues, citizens can by having higher reservation utilities prevent it, but choose not to do so, given the political competition amongst citizens. Corruption is manifested in higher tax rates and not in a decline in public good allocation to jurisdictions.

Suggested Citation

  • Santanu Gupta & Raghbendra Jha, 2009. "Limits to citizens’ demand in a democracy," Departmental Working Papers 2009-16, The Australian National University, Arndt-Corden Department of Economics.
  • Handle: RePEc:pas:papers:2009-16
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    File URL: https://crawford.anu.edu.au/acde/publications/publish/papers/wp2009/wp_econ_2009_16.pdf
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    More about this item

    Keywords

    median voter; local public good; reservation utility;

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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