Tax contracts, party bargaining, and government formation

Hans Gersbach, Maik Schneider

Research output: Contribution to journalArticle

1 Citation (Scopus)
84 Downloads (Pure)

Abstract

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.
Original languageEnglish
Pages (from-to)173-192
Number of pages19
JournalMathematical Social Sciences
Volume64
Issue number2
DOIs
Publication statusPublished - 2012

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Bargaining
Tax
Contracts
taxes
Taxes
Democracy
Politics
Elections
Welfare
Government
Government formation
Voting
society
polarization
voting
politician
Extremes
Polarization
Choose
election

Keywords

  • Political Economy
  • Contract theory
  • Voting
  • Government Formation

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Tax contracts, party bargaining, and government formation. / Gersbach, Hans; Schneider, Maik.

In: Mathematical Social Sciences, Vol. 64, No. 2, 2012, p. 173-192.

Research output: Contribution to journalArticle

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