Electoral Politics in the Zero-Sum Society

In most recent work on the theory of elections, parties are assumed to compete over a multidimensional space of issues or policy variables. Distributional considerations arise only indirectly in this structure, and candidates cannot appeal directly to particular constituents or groups by offering them specific targeted benefits or services. This theory of pure "issue" politics thus ignores the prevalent constituent-service aspects of contemporary electoral politics. The present paper develops a theory of electoral competition under an alternative structure, in which candidates compete by directly offering particular benefits and services to voters. The analysis presumes a symmetry in the roles of incumbent and challenger, in that the former necessarily commits himself to an allocation first, by his actions in office, thereby presenting the challenger with a fixed target to optimize against. Voters tend to discount the challenger's promises to some degree in comparing them to the benefits currently being received under the incumbent, and cast their votes so as to maximize the level of benefits received. The main results are as follows: 1. Optimal candidate strategies in this regime turn out to be rather different from those in the classical spatial modeling framework. Challengers pursue a "divide and conquer" strategy of bidding for a minimum winning coalition of voters. Incumbents, by contrast, pursue a more even-handed strategy, attempting to appeal to all their constituents. The model thus predicts distinctive differences in the behavior of challengers and incumbents, with no tendency for the candidates to converge on a common strategy or position, as in the classical Downsian case. 2. The discount factors voters use in assessing the challenger's promises—the "incumbency premia"—can be interpreted as a set of constituent demands. If these are treated as endogenous strategic variables which voters vary so as to maximize their long-run level of the benefits, there exists an equilibrium. In equilibrium, voters capture all the benefits from the parties. The degree of inequality in the equilibrium allocation is related to the degree of risk aversion with which the electorate views candidate behavior. 3. An issue is a measure or proposal which, if enacted, would generate a fixed distribution of benefits and costs, and on which each candidate must take a position. We obtain simple classification of issues according to their electoral consequences, and show that one important category of issues—which we label the "controversial" issues—is strategically important. The existence of a controversial issue invariably work to the disadvantage of the incumbent; hence he always has an incentive to suppress or remove it from the electoral arena altogether, if he can. If he cannot, it will then be optimal for the incumbent to favor the issue if and only if it is one which produces a (positive) net social benefit. Even with this optimal position, however, under general conditions the incumbent will nevertheless be defeated, by a challenger who opposed the issue and who will therefore not enact it, even though it would be socially optimal to do so. These results thus support the doubts expressed by Thurow and others, concerning the inability of a competitive democratic systems to deal effectively with major issues when distributional considerations become politically important. They also imply, however, that Thurow's proposed reforms, to strengthen party responsibility, would not help, since the problem lies in the nature of the competitive process itself

Fairness, Self-Interest, and the Politics of the Progressive Income Tax

All advanced democracies have adopted income taxes with considerable progression in marginal tax rates. To explain this we examine the nature of individual and collective preferences over alternative tax schedules, in the context of a simple two-sector model. We first consider the case of altruistic or "sociotropic" citizens who view the income tax as a means of achieving a fairer or more egalitarian distribution of income. We show that greater marginal-rate progressivity may well be less fair; that a "fairest" tax, however defined, is always a linear or "flat-rate" schedule in which all incomes are taxed at the same marginal rate; and that with a purely sociotropic electorate there exists a flat-rate schedule which is a majority equilibrium. We then show that with "self-interested" voters who seek to minimize their own tax burdens, greater marginal-rate progression may well be preferred by middle-and upper-income voters; that for middle-income citizens the optimal schedule is a sharply progressive one; and that within the set of individually optimal schedules there exists a majority equilibrium, which is a progressive schedule which minimizes the burden on median-income or middle class citizens, at the expense of lower-and upper-income taxpayers

Linearity of the Optimal Income Tax: A Generalization

In an earlier paper, we examined the nature of individual and collective preferences over alternative income tax schedules in the context of a simple model in which individuals respond to high tax rates by working in an untaxed "sheltered" sector of the economy. There we established the social optimality of a linear income tax among the set of tax schedules that are continuous, nondecreasing convex functions of income. Here we relax the restrictions on tax schedules, most importantly allowing schedules to have concave (decreasing marginal tax rate) as well as convex (increasing marginal tax rate) regions. In fact, we prove that a linear income tax is socially preferred to any nonlinear lower semi-continuous tax schedule

The Ecological Fallacy Revisited: Aggregate-Versus-Individual-Level Findings on Economics and Elections, and Sociotropic Voting

Several aggregate-level studies have found a relationship between macroeconomic conditions and election outcomes, operating in intuitively plausible directions. More recent survey-based studies, however, have been unable to detect any comparable relationship operating at the individual-voter level. This persistent discrepancy is puzzling. One recently proposed explanation for it is that voters actually behave in an altruistic or “sociotropic” fashion, responding to economic events only as they affect the general welfare, rather than in terms of self-interested “pocketbook” considerations. It is argued here that the discrepancies between the macro- and micro level studies are a statistical artifact, arising from the fact that observable changes in individual welfare actually consist of two unobservable components, a government-induced (and politically relevant) component, and an exogenous component caused by life-cycle and other politically irrelevant factors. It is shown that, because of this, individual level cross-sectional estimates of the effects of welfare changes on voting are badly biased and are essentially unrelated to the true values of the behavioral parameters of interest: they will generally be considerable underestimates and may even be of the wrong sign. An aggregate-level time-series analysis, on the other hand, will often yield reasonably good (if somewhat attenuated) estimates of the underlying individual-level effects of interest. Thus, in this case, individual behavior is best investigated with aggregate- rather than individual-level data. It is also shown that the evidence for sociotropic voting is artifactual, in the sense that the various findings and evidence which ostensibly show sociotropic behavior are all perfectly compatible with the null hypothesis of self-interested, “pocketbook” voting