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Political competition within and between parties: An application to environmental policy

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Author Info
Cremer, Helmuth
De Donder, Philippe
Gahvari, Firouz

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Abstract

This paper presents a political economy model that is consistent with the low rate of emission taxes in the U.S., as well as the fact that neither Democrats nor Republicans propose to increase them. The voters differ according to their wage and capital incomes. They vote over the emission tax rate and a budgetary rule that specifies how to redistribute the tax proceeds. The political competition is modeled á la Roemer [Roemer, J., 2001. Political Competition: Theory and Applications. Harvard University Press] where the two parties care for the policies they propose as well as the probability of winning; the equilibrium solution concept is the Party Unanimity Nash Equilibrium (PUNE). We calibrate the model using U.S. data and compute the PUNEs numerically. Two types of PUNEs emerge. In one, reflecting the preferences of the militants in the two parties, equilibrium is characterized by both parties proposing a very huge tax rate, with Democrats typically beating the Republicans. In the other, dictated more by the concerns of the opportunists who care most about winning elections, both offer subsidies and both have a chance to win the election.

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Publisher Info
Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 92 (2008)
Issue (Month): 3-4 (April)
Pages: 532-547
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Handle: RePEc:eee:pubeco:v:92:y:2008:i:3-4:p:532-547

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Web page: http://www.elsevier.com/locate/inca/505578

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bos, Dieter, 2000. "Earmarked taxation: welfare versus political support," Journal of Public Economics, Elsevier, vol. 75(3), pages 439-462, March. [Downloadable!] (restricted)
  2. Brett, Craig & Keen, Michael, 2000. "Political uncertainty and the earmarking of environmental taxes," Journal of Public Economics, Elsevier, vol. 75(3), pages 315-340, March. [Downloadable!] (restricted)
  3. Helmuth Cremer & Philippe De Donder & Firouz Gahvari, 2004. "Political Sustainability and the Design of Environmental Taxes," International Tax and Public Finance, Springer, vol. 11(6), pages 703-719, November. [Downloadable!]
    Other versions:
  4. John E. Roemer, 1999. "The Democratic Political Economy of Progressive Income Taxation," Econometrica, Econometric Society, vol. 67(1), pages 1-20, January.
    Other versions:
  5. Gately, D. & Huntington, H.G., 2001. "The Asymmetric Effects of Changes in Price and Income on Energy and Oil Demand," Working Papers 01-01, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
  6. Marsiliani, Laura & Renstrom, Thomas I, 2000. "Time Inconsistency in Environmental Policy: Tax Earmarking as a Commitment Solution," Economic Journal, Royal Economic Society, vol. 110(462), pages C123-38, March. [Downloadable!] (restricted)
  7. Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 2003. "Environmental taxes with heterogeneous consumers: an application to energy consumption in France," Journal of Public Economics, Elsevier, vol. 87(12), pages 2791-2815, December. [Downloadable!] (restricted)
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  8. Helmuth Cremer & Philippe De Donder & Firouz Gahvari, 2004. "Taxes, Budgetary Rule and Majority Voting," Public Choice, Springer, vol. 119(3_4), pages 335-358, 06. [Downloadable!]
  9. Laslier, Jean-Francois & Picard, Nathalie, 2002. "Distributive Politics and Electoral Competition," Journal of Economic Theory, Elsevier, vol. 103(1), pages 106-130, March. [Downloadable!] (restricted)
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Cited by:
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  1. Helmuth Cremer & Philippe De Donder & Firouz Gahvari, 2007. "Energy Taxes in Three Political Economy Models," Advances in Economic Analysis & Policy, Berkeley Electronic Press, vol. 7(1), pages 1707-1707. [Downloadable!] (restricted)
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