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Tax Contracts and Elections

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  • Gersbach, Hans
  • Schneider, Maik

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.

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  • Gersbach, Hans & Schneider, Maik, 2012. "Tax Contracts and Elections," CEPR Discussion Papers 9054, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9054
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    14. Gersbach, Hans & Schneider, Maik, 2008. "Tax Contracts and Government Formation," CEPR Discussion Papers 7084, C.E.P.R. Discussion Papers.
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    Citations

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    Cited by:

    1. Gersbach, Hans & Schneider, Maik T. & Tejada, Oriol, 2019. "Coalition preclusion contracts and moderate policies," Games and Economic Behavior, Elsevier, vol. 114(C), pages 28-46.
    2. Hahn, Volker & Mühe, Felix, 2009. "Committees and reciprocity," Mathematical Social Sciences, Elsevier, vol. 57(1), pages 26-47, January.
    3. Gersbach, Hans & Liessem, Verena, 2008. "Incentive contracts and elections for politicians with multi-task problems," Journal of Economic Behavior & Organization, Elsevier, vol. 68(2), pages 401-411, November.
    4. Hans Gersbach & Verena Liessem, 2008. "Reelection threshold contracts in politics," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 31(2), pages 233-255, August.
    5. Gersbach, Hans & Schneider, Maik T., 2012. "Tax contracts and elections," European Economic Review, Elsevier, vol. 56(7), pages 1461-1479.
    6. Gersbach, Hans & Imhof, Stephan & Tejada, Oriol, 2014. "Channeling the Say in Political Decision Bodies," CEPR Discussion Papers 10154, C.E.P.R. Discussion Papers.
    7. Hans Gersbach, 2004. "Competition of Politicians for Incentive Contracts and Elections," Public Choice, Springer, vol. 121(1), pages 157-177, October.
    8. Gersbach, Hans & Müller, Markus, 2006. "Elections, Contracts and Markets," CEPR Discussion Papers 5717, C.E.P.R. Discussion Papers.
    9. Markus Müller, 2007. "Motivation of politicians and long-term policies," Public Choice, Springer, vol. 132(3), pages 273-289, September.
    10. Verena Liessem, 2008. "Electoral competition, incentive contracts for politicians and unknown preferences," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 30(1), pages 13-41, January.
    11. Fehrler, Sebastian & Fischbacher, Urs & Schneider, Maik T., 2016. "Who Runs? Honesty and Self-Selection into Politics," IZA Discussion Papers 10258, Institute of Labor Economics (IZA).
    12. Gersbach, Hans & Schneider, Maik T., 2012. "Tax contracts, party bargaining, and government formation," Mathematical Social Sciences, Elsevier, vol. 64(2), pages 173-192.
    13. Hans Gersbach & Markus Müller, 2011. "Information Markets, Elections and Contracts," CESifo Working Paper Series 3327, CESifo.
    14. Gersbach Hans, 2012. "Contractual Democracy," Review of Law & Economics, De Gruyter, vol. 8(3), pages 823-851, December.
    15. Gersbach, Hans & Kleinschmidt, Tobias, 2009. "Power to youth: Designing democracy for long-term well-being," Mathematical Social Sciences, Elsevier, vol. 58(2), pages 158-172, September.

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    More about this item

    Keywords

    Elections; Government formation; Political contracts; Tax promise;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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