Tax Contracts and Elections

CER-ETH Center of Economic Research at ETH Zurich, Working Paper No. 09/123

50 Pages Posted: 20 Dec 2009

See all articles by Hans Gersbach

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Maik T. Schneider

University of Bath

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2009

Abstract

In this paper we examine the impact of tax contracts as a novel institution on elections, policies, and welfare. We consider a political game in which three parties compete to form the government. Parties have policy preferences about the level of public-good provision and benefit from perks when in office. A government raises taxes for both purposes. We show that tax contracts yield moderate policies and lead to lower perks by avoiding the formation of grand coalitions in order to win government. Moreover, in polarized societies they unambigously improve the welfare of the median voter.

Keywords: political contracts, elections, government formation, tax promise

JEL Classification: D72, D82, H55

Suggested Citation

Gersbach, Hans and Schneider, Maik T., Tax Contracts and Elections (December 1, 2009). CER-ETH Center of Economic Research at ETH Zurich, Working Paper No. 09/123. Available at SSRN: https://ssrn.com/abstract=1524264 or http://dx.doi.org/10.2139/ssrn.1524264

Hans Gersbach (Contact Author)

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

Zürichbergstrasse 18
Zurich, 8092
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+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Maik T. Schneider

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

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