Tax Contracts and Elections
64 Pages Posted: 28 Sep 2012
There are 2 versions of this paper
Tax Contracts and Elections
Date Written: July 2012
Abstract
In this paper we examine the impact of tax contracts, a novel instrument, on elections, policies, and welfare. We consider a political game in which three parties compete to form the government and voters may behave strategically. 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 unambiguously improve the welfare of the median voter.
Keywords: elections, government formation, political contracts, tax promise
JEL Classification: D72, D82, H55
Suggested Citation: Suggested Citation
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