Balanced-Budget Redistribution as the Outcome of Political Competition

• Published in: Public choice Vol. 52; no. 3; pp. 273 - 297
• Main Authors: Lindbeck, Assar, Weibull, Jörgen W.
• Format: Journal Article
• Language: English
• Published: Kluwer Academic Publishers 01-01-1987
• Subjects: Administrative expenses; BUDGET CONTROL; Budgetary policy; Competition; Economic competition; Economic theory; Electorate; Marginal costs; Marginal utility; Nash equilibrium; Plurality voting; Political parties; POLITICAL PARTY; TAXING, TAXATION; Voting
• ISSN: 0048-5829; 1573-7101
• DOI: 10.1007/BF00116710

This paper models balanced-budget redistribution between socio-economic groups as the outcome of electoral competition between two political parties. Equilibrium is unique in the present model, and a sufficient condition for existence is given, requiring that there be enough 'stochastic heterogeneity' with respect to party preferences in the electorate. The validity of Hotelling's 'principle of minimum differentiation', and of 'Director's Law', are examined under alternative hypotheses concerning administrative costs of redistributions, and voter's possibilities both of abstaining from voting and of becoming campaign activists for one of the parties. The policy strategy of expected-plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality. Incomes are fixed and known, so lumpsum taxation is feasible. However, constraints on tax/transfer differentiation between individuals are permitted in the analysis.