Open AccessA dynamic theory of electoral competition
Author(s) -
Battaglini Marco
Publication year - 2014
Publication title -
theoretical economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.404
H-Index - 32
eISSN - 1555-7561
pISSN - 1933-6837
DOI - 10.3982/te1328
Subject(s) - economics , debt , markov perfect equilibrium , microeconomics , sequential game , competition (biology) , constraint (computer aided design) , linkage (software) , pareto principle , budget constraint , markov chain , game theory , nash equilibrium , macroeconomics , computer science , mechanical engineering , ecology , biochemistry , chemistry , operations management , machine learning , biology , gene , engineering
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 platforms include 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.