Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 654: On the Possibility of Political Change – Outcomes in Between Local and Global Equilibria

Conny Olovsson () and Jesper Roine ()
Additional contact information
Conny Olovsson: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Jesper Roine: SITE, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

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

JEL-codes: D72; H20

33 pages, First version: February 16, 2007. Revised: March 15, 2007.

Full text files

hastef0654.pdf PDF-file Full text

Download statistics

Questions (including download problems) about the papers in this series should be directed to Helena Lundin ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2018-01-27 00:01:35.