"A dynamic theory of
electoral competition"
Abstract
We present a dynamic theory of electoral competition to
study the determinants of fiscal policy. In each period, two parties choose
electoral platforms to maximize the expected number of elected
representatives. The electoral platform
includes public expenditure, redistributive transfers, the tax rate and the
level of public debt. Voters cast their vote after seeing the platforms and
elect representatives according to a majoritarian winner take all system. The
level of debt, by affecting the budget constraint in future periods, creates a
strategic linkage between electoral cycles. We characterize the Markov
equilibrium of this game when public debt is the state variable, and study how
Pareto efficiency depends on the electoral rule and the underlying fundamentals
of the economy.
Keywords: Dynamic political economy, electoral rules,
fiscal policy.
JEL Classification: D72, D78.