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Date
2008-12Type
- Working Paper
ETH Bibliography
yes
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Abstract
We examine how tax contracts affect government formation and welfare of voters in a parliamentary democracy. A tax contract specifies a range of tax rates a party is committed to if in government. We develop a new model of party competition and show that the introduction of tax contracts has two effects: a perks-reduction effect and a policy-shift effect. The former is dominant in soci- eties with a low degree of political polarization. If a society is highly polarized, tax contracts can yield more moderate political outcomes. However, there are also circumstances for which tax contracts induce more extreme policies. Show more
Publication status
publishedExternal links
Journal / series
CEPR Discussion PapersVolume
Publisher
SSRNSubject
Contract theory; Government formation; VotingOrganisational unit
03729 - Gersbach, Hans / Gersbach, Hans
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ETH Bibliography
yes
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