SSE/EFI Working Paper Series in Economics and Finance
On the Possibility of Political Change – Outcomes in Between Local and Global Equilibria
() and Jesper Roine
Abstract: We study voting over education subsidies where poor
individuals may be excluded and the rich may chose private alternatives.
With plausible changes of the standard game we show that this problem
typically has multiple equilibria; one with low taxes, many excluded, and
many in private schooling; another with high taxes, everyone in schooling,
and few choosing the private alternative. Shifts between these equilibria
can only happen through jumps in policy, not through gradual change. The
method we develop identifies the global, as well as all local majority rule
equilibria, and it characterizes "stability regions" around each local
equilibrium. Introducing costs into the political system can make the local
equilibria the globally stable outcome which, for example, implies that
identical countries with different starting points could end up with
completely different redistributive systems. Outcomes change in intuitive
ways with the parameters and several insights with respect to the
possibilities of political change seem general for problems of
redistribution with excludability.
Keywords: political economy; political equilibrium; voting; redistribution; education subsidies; local equilibrium; non-median voter equilibrium; (follow links to similar papers)
JEL-Codes: D72; H20; (follow links to similar papers)
33 pages, February 16, 2007, Revised March 15, 2007
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