SCOPE OF GOVERNMENT: Pre-election politics

When an assembly of elected politicians take the policy decisions (as in Section 4), these diversions may benefit some politicians more than others, in which case r must be disaggregated. We assume diversions to be associated with some transaction costs (1 — °), such that only °r benefit the politicians. From the voters’ viewpoint, however, these rents constitute pure waste. Thus, not only do we assume politicians to be selfish, but we also assume them to have an opportunity to take advantage of their power. Naturally, equilibrium rents could be very small. But the aspiration of politicians to extract these rents may still shape their decisions in other policy dimensions.

To make the public finance problem more interesting, we could extend the model with a labor supply choice distorted by taxation. Below, we comment on how our results would change in this richer formulation. But even this simple model entails a very rich micro-political problem. There are three conflicts of interest: between different voters (over the allocation of redistributive transfers, {&*}), between voters and politicians (over the size of rents, r), and between different politicians (over the distribution of these rents among themselves). As we shall see, different political systems alter the scope and intensity of these conflicts, basically by inducing more or less competition between politicians or voters.

Pre-election politics

In this section, we consider the solution of our policy problem from a traditional angle, namely as the outcome of Downsian electoral competition. Two office-motivated candidates make binding commitments to policy platforms in the election campaign, and rational voters select the policy platform most favorable to them. In formulating this model, we draw on the insights of several earlier contributions. As in Lindbeck and Weibull’s (1987) work on redistribution, we use a model with probabilistic voting to handle electoral equilibrium when policy is inherently multi-dimensional.6 As in Myerson (1993), Grillo and Polo (1993), Svensson (1997) and Polo (1998), we allow for endogenous rents in addition to the traditional assumption of pure office motivation. And as in Lizzeri and Per-sico’s (1998) study of redistribution versus public goods, we use our model to investigate different electoral incentives. best payday loans

Already at the outset, we want to emphasize that our model—at best— captures only one of several possible effects of different electoral systems. In particular, we hold the party structure fixed, ignoring theoretical arguments as well as empirical evidence for a larger number of parties under proportional elections. Our excuse is pragmatic; we simply do not know how to analyze multi-dimensional policy consequences of electoral competition in a multi-party setting.