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Limits to citizens’ demand in a democracy

  • Santanu Gupta
  • Raghbendra Jha

    ()

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.

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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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Paper provided by The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2009-16.

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Length: 34 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:pas:papers:2009-16
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