Channeling the Final Say in Politics

46 Pages Posted: 23 Aug 2012 Last revised: 4 Sep 2012

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)

Stephan Imhof

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Oriol Tejada

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Date Written: August 1, 2012

Abstract

We examine how the final say in a sequence of proposals for local public project provision, financing, and redistribution can be channeled towards socially desirable outcomes, thereby breaking the dictatorial power of the last agenda-setter. Individuals are heterogeneous with some citizens benefiting from the public project (winners) and the rest losing (losers) relative to per-capita costs. Our main insight is that a simple ban on subsidies for the proposal-makers can achieve the purpose whenever the first proposal-maker is a winner and the second proposal-maker is a loser. Such a ban induces project winners to make efficient public project proposals that are however coupled with socially undesirable subsidy schemes. The best possible amendment for project losers is then to match the project proposal and to eliminate all subsidies. We further show that two-round proposal-making constitutes the minimal form of political competition yielding first-best outcomes and that restrictions on tax schemes are socially desirable.

Keywords: constitutional design, local public project provision, subsidies, majority rule

JEL Classification: D72, H40

Suggested Citation

Gersbach, Hans and Imhof, Stephan and Tejada, Oriol, Channeling the Final Say in Politics (August 1, 2012). Available at SSRN: https://ssrn.com/abstract=2134874 or http://dx.doi.org/10.2139/ssrn.2134874

Hans Gersbach

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

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

IZA Institute of Labor Economics

P.O. Box 7240
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

Stephan Imhof

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Oriol Tejada (Contact Author)

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
41446329693 (Phone)

HOME PAGE: http://www.cer.ethz.ch/mip/people/toriol

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