Limits to citizens’ demand in a democracy

Santanu Gupta and Raghbendra Jha ()

Departmental Working Papers from The Australian National University, Arndt-Corden Department of Economics

Abstract: This paper examines how citizens decide on their reservation utilities (expectations), in a model with democratic institutions and majority rule. If all individuals have identical incomes, then political competition amongst citizens, to attract resources from the government brings reservation utilities of citizens down to zero. The same is not the case when individuals have different incomes, but it is the richest and the median income citizens who win in the process and tax resources are equally distributed between them. In a situation where the government is corrupt and siphons off a part of the tax revenues, citizens can by having higher reservation utilities prevent it, but choose not to do so, given the political competition amongst citizens. Corruption is manifested in higher tax rates and not in a decline in public good allocation to jurisdictions.

Keywords: median voter; local public good; reservation utility (search for similar items in EconPapers)
JEL-codes: H41 H72 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm, nep-pbe and nep-pol
Date: 2009
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Persistent link: http://EconPapers.repec.org/RePEc:pas:papers:2009-16

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