Finite-lived politicians and Yardstick competition

Emmanuelle Reulier and Yvon Rocaboy
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Emmanuelle Reulier: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique

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Abstract: The introduction of finite-lived politicians within a life cycle model raises the well-known "last period problem". An opportunistic incumbent, who is serving his/her last term, will not be penalized for introducing higher taxes. In this and other respects, tax competition is often considered as a yardstick. Changes in the tax rate within a given jurisdiction are influenced by the tax rate changes in neighboring jurisdictions. Combining these two notions yields the conclusion that a leviathan politician in office may not be contained if the incumbent in the neighboring jurisdiction is holding office for the last time. In this paper we challenge that conclusion. We show that the efficiency of yardstick competition in restraining opportunistic political behavior depends upon the number of competing jurisdictions and the way in which these jurisdictions are spatially organized.

Keywords: opportunistic politicians; local Taxation; Term Limits; Yardstick Competition (search for similar items in EconPapers)
Date: 2006
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Published in Journal of Public Finance and Public Choice, 2006, 1, pp.23-40

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00169283

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