A political-economy model of taxation and government expenditures with differentiated candidates

Stefan Krasa, University of Illinois at Urbana-Champaign
Mattias K. Polborn, University of Illinois, Urbana-Champaign

Abstract

We develop a model of political competition between two candidates who choose which level of taxation (and implied government spending) to propose as their election platform. Candidates differ in the amount of public good they can produce for a given level of tax revenue. Voters differ in their incomes, as well as in their preference for the public good relative to private consumption.

Even though candidates are office-motivated, they propose strictly differentiated platforms that play to their strengths of providing lots of public good, or managing limited government, respectively. Equilibrium platforms depend on the candidates' production functions and on the preferences of (some) voter types, but -- in contrast to the Downsian model -- not on the distribution of voter types in the population. We also derive comparative statics and empirical predictions.