Journal of Economics and Development Studies

Imperfect Electoral Constraints and Taxation for an Economy with Ideological Parties and Ideological Voters
Ikuho Kochi, Raul Alberto Ponce Rodriguez

Abstract
In this paper we analyze the design of tax structure through a model of electoral competition in which political parties have preferences over fiscal outcomes and the individuals’ vote is influenced by policy issues and partisan attitudes. We analyze the tradeoff between the representation of the narrow interests of the core supporters of the party versus the representation of the pluralist preferences of the electorate in tax policy. This tradeoff depends on the electoral constraints faced by parties. To predict tax policies, we introduce a model that can distinguish different sets of electoral constraints. Our model predicts that under soft electoral constraints, taxeson income elastic goods increase under Democrat administrations while they fall under Republican governments. If electoral constraints are binding, parties design tax policy to maximize a politically aggregated welfare function (PAWF). We identify conditions in which the preferences of partisan voters will have a high weight in the PAWF. In this case, we identify conditions in which redistribution is the main guiding principle in determining tax policy in Democrat administrations while efficiency is the main principle in tax design in Republican administrations.

Full Text: PDF     DOI: 10.15640/jeds.v2n3a5