Why do both left and right political parties almost always propose progressive income taxation schemes in political competition? Analysis of this problem has been hindered by the two-dimensionality of the issue space. To give parties a choice over a domain which contains both progressive and regressive policies requires an issue space that is at least two-dimensional. Nash equilibrium between two parties with (complete) preferences over two-dimensional policies fails to exist. The author introduces a new equilibrium concept for political games, based on inner-party struggle. A party consists of three factions, reformists, militants, and opportunists: each faction has a complete preference order on policy space, but together they can only agree on a partial order. Inner-party unity equilibrium is defined as Nash equilibrium between two parties, each of which maximizes with respect to its quasi-order. Such equilibria exist in the two-dimensional model and in them, both parties propose progressive income taxation.
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
97-03.
Length: 33 pages Date of creation: Apr 1997 Date of revision: Publication status: Published in: Econometrica 67(1) 1999, 1-19 Handle: RePEc:kud:kuiedp:9703
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Find related papers by JEL classification: D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
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