Redistribution,taxes, and the median voter

We study a simple model of production, accumulation, and redistribution, where agents are heterogeneous in their initial wealth, and a sequence of redistributive tax rates is voted upon. Though the policy is infinite-dimensional, we prove that a median voter theorem holds if households have identical, Gorman aggregable preferences; furthermore, the tax policy preferred by the median voter has the “bang-bang” property.     

EXTREMIST PLATFORMS: POLITICAL CONSEQUENCES OF PROFIT-SEEKING MEDIA

We analyze how information about candidate quality affects the choice of electoral platforms made by an office-motivated political challenger. The incumbent is of known quality and located at the ideal policy of the voter. The voter cares for both policy and the candidates' quality and can learn about the challenger's quality by buying information. A high-quality challenger then has an incentive to signal her quality by choosing a policy that induces the voter to buy information. We first study the benchmark case in which the information is supplied exogenously, and its quality is independent of the challenger's platform; this yields multiple equilibria and indeterminacy of equilibrium platforms. By contrast, when the information is supplied by a profit-maximizing media outlet, its quality depends on the challenger's platform and we obtain a unique equilibrium platform. In particular, when the incumbent's quality is relatively low, the media coverage rises and the challenger's platform diverges further from the voter's ideal policy as the voter's preference for quality increases.     

Putting in politics: A review of economic models with endogenous determination of policy

The new political economy includes formal models in which the notion of general equilibrium extends to political as well as economic processes. Policies are determined endogenously. This paper first reviews models in which trade taxes and subsidies are tied to the optimal tariff of the median voter, to the interests of industry-specific lobbies and an incumbent politician, or to the attempts of competing parties to maximize the probability of their election. The paper then briefly considers models focusing on fiscal policy, macroeconomic stabilization, and the sequencing of economic reform. At the end of the paper, several critical questions are raised.     

Bargaining foundations of the median voter theorem

We give a game-theoretic foundation for the median voter theorem in a one-dimensional bargaining model based on Baron and Ferejohn's [D. Baron, J. Ferejohn, Bargaining in legislatures, Amer. Polit. Sci. Rev. 83 (1989) 1181-1206] model of distributive politics. We prove that as the agents become arbitrarily patient, the set of proposals that can be passed in any pure strategy, subgame perfect equilibrium collapses to the median voter's ideal point. While we leave the possibility of some delay, we prove that the agents' equilibrium continuation payoffs converge to the utility from the median, so that delay, if it occurs, is inconsequential. We do not impose stationarity or any other refinements. Our result counters intuition based on the folk theorem for repeated games, and it contrasts with the known result for the distributive bargaining model that as agents become patient, any division of the dollar can be supported as a subgame perfect equilibrium outcome.     

PARTY CUES,POLITICAL TRENDS,AND FISCAL INTERACTIONS IN THE UNITED STATES

Recent theoretical and empirical research has suggested that similarities in party affiliations across space will alter voters' comparisons, thus influencing fiscal policy mimicking. We employ a two‐regime spatial panel data model applied to U.S. state governors from 1970 to 2012, and find rather weak empirical evidence of influence of political party affiliations in fiscal yardstick competition. Our observed cross‐state interdependence in fiscal policies suggests voters may not weigh party affiliation heavily in their measure of comparative quality, treating each incumbent individually and independently. Incumbents strategically choose policy accordingly. This provides indirect support for the median voter theorem, in which incumbents' objective function is to maximize votes, independent of political affiliation. (JEL D72, H2, H7)     

Endogenous institutions and political extremism

The election of extreme political leaders is often associated with changes in political institutions. This paper studies these phenomena through a model in which the median voter elects a leader anticipating that he will impose institutional constraints—such as constitutional amendments, judicial appointments, or the implicit threat of a coup—that influence the behavior of future political challengers. It is typically optimal for the median voter to elect an extreme incumbent when democracy is less fully consolidated, when the costs of imposing institutional constraints are intermediate, and when the distribution of potential challengers is asymmetric. The median voter typically elects a more right-wing incumbent when the distribution of potential challengers shifts to the left. Implications of the model for the consolidation of democracy and institutional constraints are discussed, as are several related mechanisms through which politiciansʼ ability to affect institutions may lead voters to optimally elect extremists.     

Inefficient policies and incumbency advantage

We present a model of (re)elections in which an incumbency advantage arises because the incumbent can manipulate issue salience by choosing inefficient policies in the policy dimension in which he is the stronger candidate. The voters are uncertain about the state of the world and the incumbent's choice of policy. Under complete information they would reelect the incumbent if and only if the state is sufficiently high. Undesirable policy outcomes may be due to either a bad state or the incumbent's choice of inefficient policies. The incumbent uses inefficient policies in intermediate states, whereby he creates uncertainty about the true state in such a way that voters are better off in expectation reelecting him. Hence the equilibrium exhibits an incumbency advantage that stems from asymmetric information and the use of inefficient policies.     

Learning about challengers

We examine a political agency problem in repeated elections where an incumbent runs against a challenger from the opposing party, whose policy preferences are unknown by voters. We first ask: do voters benefit from attracting a pool of challengers with more moderate ideologies? When voters and politicians are patient, moderating the ideology distribution of centrist and moderate politicians (those close to the median voter) reduces voter welfare by reducing an extreme incumbent's incentives to compromise. We then ask: do voters benefit from informative signals about a challenger's true ideology? We prove that giving voters informative, but sufficiently noisy, signals always harm voters, because they make it harder for incumbents to secure re-election.     

Campaign War Chests, Entry Deterrence, and Voter Rationality

It is often claimed that the accumulation of "war chests" by incumbents deters entry by high–quality challengers in Congressional elections. This paper presents a game–theoretic analysis of the interaction between an incumbent, potential challengers, an interest group, and a representative (rational) voter, where the incumbent's "quality" (or "legislative effectiveness") is known to the interest group, but not to the voter or to potential challengers. Under certain conditions, a perfectly revealing equilibrium exists; the incumbent signals her quality by raising funds from the interest group to accumulate a war chest. The entry deterrence effect thus operates solely through the role of war chests in signaling incumbent quality.     

Playing for Your Own Audience: Extremism in Two‐Party Elections

This paper considers a two‐party election with a single‐dimensional policy space. We assume that each voter has a higher probability of observing the position of the party he is affiliated with than the position of the other party, an assumption that is consistent with the National Election Studies (NES) electoral data set. In equilibrium, the two parties locate away from the median, because the voters who dislike a party's platform observe its policy choice with a lower probability, and its own audience like policy choices that cater to its taste. As the asymmetry in voter information or the cost of voting increases, the parties adopt more extreme platforms, while if there are fewer extreme voters the opposite effect occurs. Making voters more symmetrically informed about the two parties' platforms increases the welfare of society, while asymmetric information acquisition by the voters is worse than no information acquisition at all.     

THE NON‐TRADED SECTOR,LOBBYING, AND THE CHOICE BETWEEN THE CUSTOMS UNION AND THE COMMON MARKET

This paper models immigration policy as the outcome of political competition between interest groups representing individuals employed in different sectors. In standard positive theory, restrictive immigration policy results from a low‐skilled median voter voting against predominantly low‐skilled immigration. In the present paper, in contrast, once trade policies are liberalized, restrictive immigration policy results from anti‐immigration lobbying by interest groups representing the non‐traded sectors. It is shown that this is in line with empirical regularities from recent episodes of restrictive immigration legislation in the European Union. It is further shown that if governments negotiate bilaterally over trade and migration policy regimes, the equilibrium regime depends (i) on the sequencing of the international negotiation process and (ii) on the set of available trade and migration policy regimes. In particular, the most comprehensive and most welfare‐beneficial type of liberalization may be rejected only because a less comprehensive type of liberalization is available.     

Tying the politicians’ hands: The optimal limits to representative democracy

The citizen candidate models of democracy assume that politicians have their own preferences that are not fully revealed at the time of elections. We study the optimal delegation problem which arises between the median voter (the writer of the constitution) and the (future) incumbent politician under the assumption that not only the state of the world but also the politician's type (preferred policy) are the policy‐maker's private information. We show that it is optimal to tie the hands of the politician by imposing both a policy floor and a policy cap and delegating him/her the policy choice only in between the cap and the floor. The delegation interval is shown to be the smaller the greater is the uncertainty about the politician's type. These results are also applicable to settings outside the specific problem that our model addresses.     

Two-sided uncertainty in the monopoly agenda setter model

We extend the Romer-Rosenthal model of representative democracy to a signaling environment, in which (i) only the representatives knows the ‘status quo’ outcome resulting if her take-it-or-leave-it policy proposal is rejected by the voters, while (ii) only the voters know their true preferences over policies. A separating sequential equilibrium is shown to exist, and to uniquely satisfy a common equilibrium refinement. Furthermore, this equilibrium has the property that, relative to the environment where the status quo is known to the voter, there is a downward bias in the setter's proposal, and an associated upward bias in the probability of the proposal's acceptance by the voter.     

Candidate strategies in primaries and general elections with candidates of heterogeneous quality

I consider a model in which candidates of differing quality must win a primary election to compete in the general election. I show that there is an equilibrium in which Democrats choose liberal policies and Republicans choose conservative policies, but higher quality candidates choose more moderate policies than lower quality candidates. In this equilibrium, higher quality candidates choose more moderate policies if they have a larger quality advantage or there is less uncertainty about the median voterʼs ideal point in the general election, and the candidates in a given primary choose closer policies to one another when there is a smaller quality difference between the candidates in a primary. I further show that if the candidates have policy motivations, then a low quality candidate may strategically choose to enter a primary even if running for office is costly and the candidate will lose the primary election with certainty in equilibrium.     

Heterogeneous Dynasties and the Political Economy of Public Debt

We consider a small open overlapping generations economy with descending altruism. Heterogeneity is introduced by assuming that each parent procreates a fixed proportion of selfish children. Altruistic parents can recognize the type of each child. There is no Ricardian equivalence and an active public intergenerational transfer policy is attractive to altruistic dynasty members, although there may be no unanimity among them. We display reasonable conditions for indirect preferences to be single-peaked and we apply the median voter theorem. We then describe political equilibrium paths and discuss their compatibility with the steady path of an underlying closed economy with autonomous labor productivity growth.
JEL classification : D 31; D 64; D 72; D 91; H 63     

Fairness in tax compliance: A political competition model

This paper analyzes the political economy of income redistribution when voters are concerned about fairness in tax compliance. We consider a two‐stage model where there is a two‐party competition over the tax rate and over the intensity of the tax enforcement policy in the first stage, and voters decide about their level of tax compliance in the second stage. We find that if the concern about fairness in tax compliance is high enough, a liberal middle‐income majority of voters may block any income redistribution policy. Alternatively, we find an equilibrium in which the preferences of the median voter are ignored in favor of a coalition formed by a group of relatively poor voters and the richest voters. In this equilibrium income redistribution prevails with no tax enforcement.     

A theory of self-fulfilling political expectations

In their pursuit of being re-elected, politicians might not choose high-quality policies but just conform to popular wisdom. The larger are the office spoils, and the more precise is an incumbent's knowledge of voter opinion, the more likely that she will resort to such populism. My main result is that the public's trust or distrust in politicians' behavior may be self-fulfilling. When voters assess the quality of an incumbent politician, they will compare her policy choices with their own prior opinion. If voters think that the incumbent was just trying to conform, a failure to do so will be even more damaging for the incumbent's election chances. However, this only increases the incumbent's incentives to conform, which indeed confirm voters' skepticism. Loosely put, a skeptic voter attitude tends to generate conformist politicians, while a trusting attitude tends to generate confident ones.     

Dynamic enfranchisement

Why would an enfranchised elite voluntarily dilute its power by expanding the franchise? The central intuition behind our analysis is that the dilution of power by an enfranchised elite is equivalent to the delegation of power by one member of the elite—a pivotal voter—to another citizen, who in turn becomes the pivotal voter in the new (expanded) elite. Such delegation might be useful if it allows the current pivotal voter to credibly commit to future policy choices. The current pivotal voter realizes that the agent to whom authority is delegated will face similar incentives to subsequently transfer power, and this effect tempers the extent to which the franchise is extended. We develop a recursive, infinite horizon model that generates the possibility of gradual franchise expansion. We show that, in equilibrium, expansion occurs if and only if the private decisions of the citizenry have a net positive spillover to the dynamic payoff of the current pivotal voter. The class of games we study can accommodate a number of proposed explanations for franchise extension, including the threat of insurrection, and ideological or class conflict within the elite.     

WHY DOES A TWO-PARTY SYSTEM EXIST?: A NEW ECONOMIC EXPLANATION*

The purpose of this paper is to present a new economic explanation for why a multiple-party system can endogenously arise as a result of the electoral process. The traditional view on the electoral process (i.e., the median voter theorem) is that political parties that pursue policies in the interest of the median voter are led to a convergence of policies. However, this view cannot explain why either conservative or liberal parties win election in many democratic countries. In order to explain this paradox, the following model considers an economy with three types of parties: conservative, middle, and liberal parties. In the model, the policy of each party is assumed to be time-consistent, so that the policy of the middle party generally leads to suboptimal outcomes for the majority voters. Thus, the “rational” majority voters try to elect the political party whose objective is biased. As a result, the electoral process may lead to a two-party system where both conservative and liberal parties have a chance to win election.     

Mixed strategy equilibrium in a Downsian model with a favored candidate: A comment

This note complements Aragonès and Palfrey (2002) [2] by providing upper and lower bounds of the equilibrium payoff of the advantaged (disadvantaged) candidate for any symmetric distribution of the median voter?s ideal policy and any (even or odd) number of equidistant locations. These bounds point to a negative (positive) relationship between the equilibrium payoff of the (dis)advantaged candidate and the uncertainty regarding the median voter?s preferences.