A Positive Theory of Income Taxation Where Politicians Focus Upon Swing and Core Voters

59 Pages Posted: 6 Feb 2008

See all articles by John E. Roemer

John E. Roemer

Yale University - Department of Political Science; Yale University - Cowles Foundation

Date Written: February 2008

Abstract

We construct an equilibrium model of party competition, in which parties are especially concerned with their core and swing voters, concerns which American political scientists have focused upon in their attempts to understand party behavior in general elections.

Parties compete on a large policy space of possible income-tax policies. An element in this infinite-dimensional space is a function which maps pre-fisc income into post-fisc income. The only restrictions are that the function be continuous, and satisfy exogenously specified upper and lower bounds on its derivative, where it is differentiable. Only a fraction of each voter type will vote for each party, perhaps because of issues not modeled here or voter misperceptions of policies. Each party's policy makers comprise two factions, one concerned with maximizing the welfare of its constituency, or its core, the other with winning over swing voters. An equilibrium is a pair of parties (endogenously determined), and a pair of policies, one for each party, in which neither party can deviate to another policy which will be assented to by both its core and swing factions. Formally, this is a Nash equilibrium where each party possesses only a quasi-order over the policy space. We fully characterize the equilibria. There are many. In a specially important case, each party proposes a piece-wise linear tax schedule, and these schedules coincide for a possibly large interval of middle-income voters, while the 'left' party gives more to the poor and the 'right' party more to the rich.

An empirical section uses the data of Piketty and Saez on taxation in the US during the twentieth century to assess the model's predictions. We argue that the model is roughly confirmed.

Keywords: Political economy, Income taxation, Political equilibrium

JEL Classification: D72, D31, 1130, 1120

Suggested Citation

Roemer, John E., A Positive Theory of Income Taxation Where Politicians Focus Upon Swing and Core Voters (February 2008). Cowles Foundation Discussion Paper No. 1637. Available at SSRN: https://ssrn.com/abstract=1090583

John E. Roemer (Contact Author)

Yale University - Department of Political Science ( email )

Box 208269
New Haven, DC 06520-8269
United States
203-432-5249 (Phone)
203-432-6196 (Fax)

HOME PAGE: http://pantheon.yale.edu/~jer39/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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