Time Consistency and Dynamic Democracy

Toke Aidt and Francesco Magris

No 01-06, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: This paper analyses how democratic institutions can help mitigate time inconsistency problems. We illustrate the ideas in a simple model of capital taxation. Voters delegate policy decisions to a politician and employ a retrospective voting rule to hold the elected politician accountable for its policy actions while in office. We show that non-expropriating tax policies can be sustained in Markov Perfect Equilibrium. If voters elect politicians that care enough about power or if they are willing to pay politicians a sufficiently high wage, capital is not expropriated in equilibrium.

Keywords: Performance voting; capital taxation; time consistency (search for similar items in EconPapers)
JEL-codes: D72 H21 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:eve:wpaper:01-06

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