The Democratic Political Economy of Progressive Income Taxation
John E. Roemer
Yale University - Department of Political Science
UC Davis Working Paper #97-11
Why do both left and right political parties almost always propose progressive income taxation schemes in political competition? Analysis of this problem has been hindered by the two-dimensionality of the issue space. To give parties a choice over a domain which contains both progressive and regressive policies requires an issue space that is at least two-dimensional. Nash equilibrium between two parties with (complete) preferences over two-dimensional policies fails to exist. I introduce a new equilibrium concept for political games, based on inner-party struggle. A party consists of three factions--reformists, militants, and opportunists: each faction has a complete preference order on policy space, but together they can only agree on a partial order. Inner-party unity equilibrium is defined as Nash equilibrium between two parties, each of which maximizes with respect to its quasi- order. Such equilibria exist in the two-dimensional model, and in them both parties propose progressive income taxation.
JEL Classification: D72, H20working papers series
Date posted: April 15, 1997
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