"Dynamic Electoral Competition and Constitutional Design"

Abstract

We characterize the equilibria of a dynamic model of electoral competition under alternative voting rules. Electoral competition is modeled as a dynamic extension of a standard probabilistic voting model in which public debt is a state variable creating a strategic linkage across electoral cycles. In any given state of the economy, a proportional system (PS) generates stronger incentives to provide public goods and to lower taxation than a standard majoritarian system (MMS). As in the received literature, therefore, in a static version of the model an MMS generates less public good and higher taxation than a PS.  In the steady state of a dynamic model, however, the opposite may be true because a PS is more dynamically inefficient and tends to accumulate more public debt than an MMS.  The relative performances of a PS and an MMS depend on the types of shocks that affect the economy and voters' preferences.

Keywords: Dynamic political economy, electoral rules, fiscal policy.

JEL Classification: D72, D78.