VOTING AND THE INTERTEMPORAL SELECTION OF TAX RATES IN A MACRO‐ECONOMY*

In: Economics & politics, Band 3, Heft 1, S. 41-62

Abstract

This paper presents a macroeconomic model where governments are motivated both by their ideological preference for alternative fiscal policies that vary in their short run and long run consequences and by their reelection prospects. I prove that a sequential equilibrium exists in which moderate incumbents compromise their ideologies in order to get reelected, while extreme governments forego reelection but tie the hands of their successors. The view implied by this model is that incumbent governments, in order to get reelected, do not ideologically differentiate themselves from one another since such behavior is likely to result in loss of office. Alternatively, governments that are either subsequently not reelected or are lame ducks pursue ideologically preferred policies since they are less constrained by the electorate.