EC3161 Spring 2020 - Michael Kingmichaelking.ie/wp-content/uploads/2020/01/EC3161-L1-Voting.pdf · Horizontal and vertical equity Ricardian Equivalence Fiscal illusion Module 1 Review

EC3161 Economics of Policy Issues 1

Economics of Policy IssuesEC3161

Spring 2020Lecture Notes 1

Michael King


Course Details1. Email and lecture notes:

[email protected]

2. Office Hours:Friday 14.00 – 16.00 in Room 3002, Arts Building.

3. Course Text Book:Public Finance and Public Policy (2009), Arye Hillman. 2nd Edition. Chapters 6-10 (or later editions). Secondary Reading:

4. Social Justice: Distribution, Poverty and Policy Responses, in The Economy of Ireland, 13th Edition, edited by John O’Hagan and Carol Newman, 2017.

http://tcd.ie

http://www.michaelking.ie/

http://www.economyofireland.ie/book


Module Assessment

• Assessment for EC3161 is made up of:– 15% for group presentation.

• 10% for presentation• 5% for attendance

– 35% for individual policy paper.– 50% for final examination.


Group Assignment• Everyone is expected to attend six tutorials. • Monday Tutorial (13.00 Regent House) = Weeks

5, 6 (tbc), 9, 10 and 11. • Wednesday Tutorial (11.00 Room 3, College

Green) = 5, 6 (tbc), 9, 10 and 11.

Please Note: Week 5 starts on 18th of February, Week 7 is reading week and Week 8 is the week of the mid-term exam.


Free markets

Positive Attributes of the MarketAdam Smiths Invisible handEfficiency of the competitive marketsPareto efficient outcomesInformationally superior

Market FailuresInefficiency of monopolised marketsExternalitiesUnder provision of public goods

Market RequirementsRequires rule of lawProperty rights

Module 1 Review



Free markets Role for Government

Positive Attributes of the MarketAdam Smiths Invisible handEfficiency of the competitive marketsIn ideal circumstances, can lead to pareto efficient outcomeInformationally superior




Module 1 Review








Module 1 Review

Public GoodsPure and congestedLevels of exclusionPrisoners dilemma

ExternalitiesFailure to internaliseTragedy of commonsPigovian taxesRegulationPaternalistic policies

EC3161 Economics of Policy Issues


8








Module 1 ReviewAsymmetric Information

Principal Agent Problems

Voters and Taxpayers

Societal Preferences for EquityRedistribution and social justice



9








Taxation/BorrowingDistortionary costsCompliance and admin costsLaffer curveHorizontal and vertical equityRicardian EquivalenceFiscal illusion

Module 1 ReviewAsymmetric Information





Module 1 Review: Key Definitions1. A competitive market efficiently assigns goods among

buyers to maximise buyers total benefit (agnostic to distribution).

2. A competitive market efficiently assigns the supply of goods among sellers to minimise total cost.

3. A competitive market adjustment mechanism ensures that the market moves to and remains at the efficient market equilibrium.

4. Change is pareto improving when some one gains and no one loses.

5. An outcome is pareto efficient when a pareto improving change cannot take place.


Module 1 Review: Key Definitions

6. Nash equilibrium – no person can gain by changing his or her decisions given the decisions that others have made.

7. A principal agent problem is present when the principals (taxpayers and voters) cannot ensure that agents (political decision makers) will act in the best interests of the principals.

8. A benefit obtained not productively but through influencing the decisions of others is a rent –incurs costs to society.


Module 1 Review: Key Definitions

9. If people voluntarily pay their Lindahl prices based on their true benefits from a public good, the consensus quantity of a public goods is the efficient quality.










ExternalitiesFailure to internaliseTragedy of commonsPigovian taxesRegulationPaternalistic policiesTaxation/Borrowing

Distortionary costsCompliance and admin costsLaffer curveHorizontal and vertical equityRicardian EquivalenceFiscal illusion

EC3161 FocusAsymmetric Information




Module Outline1. Voting – Median Voter, Majority Voting, Political

Competition, Voting on Redistribution2. Social Justice – Insurance, Moral Hazard and Social

Justice without Government3. Entitlements – Attributes and Consequences, Old Age,

Health Care4. Choice of Taxation – Optimal Taxation, Capital and

Other Taxes and Fiscal Federalism5. The Need for Government – Growth of Government,

Cooperation and Trust

14


Voting: Introduction• “Democracy means government by

discussion, but it is only effective if you can stop people talking.” - Clement Atlee

• Voting: How collective decisions are made?• Can voting achieve the social objectives of

efficiency and social justice?– Social justice is about the ‘fair’ distribution of

social values (freedom, income and wealth and the opportunity to take part in society).

• Assume: No principal-agent problems• Why do people vote? One vote does not

influence the outcome of voting. For now we assume that people vote.


Lecture Notes Outline1. Consensus Voting2. Majority Voting (the median voter)3. The Condorcet Winner4. Logrolling (Coalitions)5. Political Competition6. Systems of Voting and the Condorcet Winner

– Two round voting– Plurality– Proportional Representation– Preferential Voting– Approval Voting– The Irish System

7. Voting on Redistribution

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1. Consensus Voting• A consensus voting rule: Any individual voter

has the ability to veto proposal• Consensus ensures Pareto-improvement

because no one has vetoed• Let’s model consensus voting for public good• A voter knows own personal MB and votes

according to Ti=MBi, where Ti’s Lindahl voluntary tax payments

• If the government announces (T1,T2,T3) where åTi=P, all voters vote for the efficient consensus GE where å MBi=MC


• P = MC due to perfectly competitive markets in supply• No distortionary burden of taxation – voters pay for

benefits directly• Voting takes place after a government has announced

the voters different personal tax shares. Everyone votes for GE


• Incentive to underestimate personal MB• A government could in principle iterate (tax shares and

hold vote) to find the efficient Lindahl consensus, but impractical

• Transactions costs because of asymmetric information in – verifying losses of losers (can this be identified properly?)– taxing gainers to pay losers

• Opportunistic extortion from power of veto• Compensation can ensure that socially worthwhile

projects go ahead


2. Majority Votingand Median Voter

• Because the government cannot set efficient Lindahl taxes, we require a rule for determination of individuals’ taxes for financing public goods

• Rather than consensus, we use the majority-voting rule• We proceed with equal individual tax shares

• With majority voting, equal tax shares and asymmetric information, there is no consensus about the quantity or quality of the public good unless negotiations are successful


• Voters know their own MB function but not others. Government does not know anyone's MB function.

• Sufficient information for voter to decide what level of public good they wish.

• Voters choose G where Ti = MBi , i = 1,2,3…

• Voter 1 wants G1, Voter 2 wants G2 etc…


• “Do you favour an increase in the supply of the good?”– Equilibrium is attained when there is no majority in

favour of increasing or reducing supply. – At G2 MB1(G2) < T, MB2(G2) = T and MB3(G2) >T– Only the median voter (MV) is happy with outcome of

majority voting. – Voters wanting less of the public good than MV lose

out. – Voters wanting more are denied additional benefit.


• Sometimes referred to as the dictatorship of the median voter• Identity of the median voter depends on the structure of the taxes.

– Taxpayer 3 is the median voter under unequal tax obligations • Identity of the median voter can change with the price of the public

good.


• Does majority voting result in efficient public spending?– Ti is the median voter actual tax bill. Gm is less than efficient supply of G.– Under majority voting, with taxes are determined by equal cost sharing, a median

voter would only fortuitously (by luck) choose efficient public spending– Why? Because this median voter values the public good less than the average at

this tax level. • In general, majority voting equilibrium does not result in efficient supply

of public good.


• If valuations are normally distributed, the median voter chooses the efficient quantity

• When the average valuation > median = less than efficient G is chosen


Analysis can also be applied to externalities

Conclusions• Majority voting does not assure efficient

supply of public goods• Public goods cannot be efficiently supplied

through voluntary spending in markets


Case Study 1: Parliamentary Voting for Brexit How MPs voted in 2016 Referendum

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• Both Tory and Labour manifestos at 2017 election – Leave the EU– Leave the single market. – Tory manifesto: leave the customs union.

• May after crushing defeat of her Brexit deal. – "It is clear that the House does not support this deal,

but tonight’s vote tells us nothing about what it does support."

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Brexit DeliberationsProposed Amendments • Extend article 50• Stop no deal• Give parliament more control (to debate)• A Labour Brexit deal• Limit the Irish backstop• A second referendum• Indicative votes• A citizens’ assembly

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Let’s simplify:

Let’s say there are three factions. – 1/3 hard brexiteers.– 1/3 for Brexit but with a customs union. – 1/3 remainers.

• No one proposal would get a majority.• Order of the voting important, preferential

voting or a citizens assembly the way to go.

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3. Condorcet winner and efficient public spending proposals

The question now is: • Does majority voting select efficient public

spending proposals for which the benefit-cost rule W=B-C>0 is satisfied over inefficient proposals (for which W=B-C<0)?– Different quantities of the same public good: (X<Y<Z)– Majority voting


Definitions• The Condorcet winner defeats all other proposals in pair-

wise majority voting• For a set of candidates/projects, the Condorcet winner is

always the same regardless of the voting system in question.

• Single-peaked preferences


• Voter rankings of alternative public projects (X<Y<Z) based on knowledge of own benefits and their increased tax payment

• Case A: Single-peaked preferences

• Y is the Condorcet winner: {Y P X}, {Y P Z}

• There is no Condorcet winner: {X P Y}, {Z P X}, {Y P Z}


• In case B every proposal can be defeated by another proposal and a stable outcome of majority voting does not exist - indefinite cycling occurs


• Why might preferences not be single-peaked?– Minimal effective spending– Different projects rather than different quantities

• If the projects can be ranked to provide single-peaked preferences, a Condorcet winner exists

• When preferences are not single-peaked, control over the agenda – or the order of voting (losers in sequential pair-wise contests are eliminated)– determines the winner

• Z is the winner – outcome predetermined by the order of the voting. First pair wise is X and Y.


• The Condorcet winner and cost-benefit analysis• Case A: Project Y was the Condorcet winner

• A project that is a Condorcet winner need not satisfy the cost-benefit criterion W=B-C>0

Project Y CB Analysis


• Case A: Project X lost to project Y but satisfies the cost-benefit condition W=B-C>0

• There is no necessary relation between a Condorcetwinner and efficient public spending

• Compensatory payments can deliver Paretoimprovements


Voting externalities• There are voting externalities because voting

decisions are insensitive to how much losers lose and how much gainers gain

• Can markets in votes achieve efficiency?– Markets in votes would achieve efficiency– Markets in votes are disallowed because of

• The principle of “one person one vote”


4. Logrolling (Coalitions)• Markets in which people pay

money for votes are illegal• Vote trading among elected

political representatives can legally take place

• Definition: Logrolling is vote trading

• Does logrolling ensure that majority voting results in efficient public spending decisions?


• Logrolling with efficient projects• All projects can in principle be financed• With majority voting all three proposals will be rejected, despite

satisfying the cost-benefit criterion.

• Logrolling has resulted in acceptance for two of three proposals V(1,2) maximises total and individual benefit for 1 and 2.

• Politician 3’s constituency pays taxes but does not benefit

( ) ( )60,80,90,12 -=EDV( ) ( )70,50,80,13 -=FDV( ) ( )70,70,50,23 -=FEV


• Logrolling with inefficient proposals

• Logrolling can result in majority support for proposals for which public finance is not justified by CB analysis (V12(D,E)).

( ) ( )60,10,10,12 -=EDV( ) ( )10,70,10,13 --=FDV( ) ( )10,20,80,23 --=FEV


• Through all-inclusive logrolling coalitions, the inefficiency of logrolling could be escaped if votes could be traded for money

• Politician 3 could pay 1 and 2 to support proposal F.

• If money transfers can take place, any coalition formed through logrolling is unstable

• Instability rarely observed - why is there stability in coalitions? Loss to defection

• The political benefit of logrolling is that no money changes hands


Checks and balances• Checks and balances protect a minority of taxpayers

from outcomes dictated by the majority (legal or constitutional rules)

• The public-good prisoners’ dilemma with 2 groups of voters – the asymmetric outcomes occur when the majority vote for the minority to pay for the public good

• A rule requiring non discrimination rules out the asymmetric outcomes. 3,3 is the efficient consensus.


• Secession and personal exit are responses to absence of checks and balances. If the losses for a group are systematic, the group might be led to consider secession.

• Personal locational choice (Tiebout) can solve the problems of the majority-minority conflict

• Instability through rotation in office is desirable, particularly if checks and balances are not present to counter the tyranny of the majority.


5. Political competition:Direct & representative democracy

• Does political competition result in efficient public spending?

• Why not direct democracy?– High cost of seeking individuals opinions on policies. – Dedicated politicians can be better informed. – ICT is changing both of these.

• Referendums are direct democracy. • Voters are better informed when there is direct

democracy. People feel more in control and happier (apparently).


• Ostrogorski’s paradox (1903)

• Under direct democracy, a decision is made on each issue separately. All projects are accepted.


• Representative democracy: Two candidates– Candidate 1 opposes spending on all projects– Candidate 2 supports spending on all projects

• Benefits for voters in groups 1, 2 and 3 are smaller than the losses incurred in paying taxes to fund the other two projects that they do not want

• Groups 1, 2 and 3 oppose proposals and 4 supports –no proposal is financed

• The outcome of majority voting under representative democracy can be the precise opposite of the outcome under direct democracy.

• If all three projects are efficient, the outcome of direct democracy is preferred


Political competition with a single issue

• We remain in the situation that information is insufficient to make judgements about – Efficiency of voting outcomes– Social justice

• Does political competition replicate the outcome under majority voting or the Condorcet winner?


• Two candidates take positions on level of spending on G• Voters know their tax liability • Single peaked preferences, distributed between 0-Gmax • Best outcome for voter is candidate proposing G close to

their preference. All voters vote.

• Nash equilibrium with 2 candidates is Gm• Focus on attributes of candidates• See: http://www.youtube.com/watch?v=cFt0k6n_HKc for

online demonstration.

http://www.youtube.com/watch%3Fv=cFt0k6n_HKc


• Platform duplication in practice?• Locked-in votes – candidates rely on continued

support at median– Expressive voting (focus on absolute position as

opposed to relative position)– Abstention moves median voter further away from

non-voters position. – Repeated votes, importance of reputation, people

may expressively vote for consistency/honesty• An inflexible ideological candidate loses with

certainty• Outcomes with multiple candidates (3,4 and 5)


Some Readings• Corbyn and the British Labour Party Conundrum:

http://realprogressinenglish.blogspot.ie/2015/09/jeremy-corbyn-and-median-voter-theorem.html

• American Politics: https://www.washingtonpost.com/posteverything/wp/2015/05/29/the-end-of-the-median-voter-theorem-in-presidential-politics/

• Political Compass – You should take this quiz!!https://www.politicalcompass.org/test

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http://realprogressinenglish.blogspot.ie/2015/09/jeremy-corbyn-and-median-voter-theorem.html

https://www.washingtonpost.com/posteverything/wp/2015/05/29/the-end-of-the-median-voter-theorem-in-presidential-politics/

https://www.politicalcompass.org/test


Comments 11. Corbyn very left of the median voter on most/all issues. 2. Corbyn was voted in by party activists/MPs. The former

not representative of the electorate. 3. Labour played centrist politics since 1997 much to the

disillusionment of party members.4. Q: If parties converge to the centre how do party

activists remain motivated.

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Comments 25. Standard metrics can show how far left/right a party

individual is. 6. For US primaries candidates shift towards their bases

(quite left or right) only to short back towards the centre for presidential elections.

7. Role for party activists as agenda setters (e.g. election of Crobyn, Sanders in US, Tea Party)

8. Mutual repulsion can occur. If the republican party goes far right, the democrats can drift left with losing the median voter.

53


Political Positions of Congress (1879-2009)

54

Poole and Rosenthal via www.voteview.com

http://www.voteview.com


Example Profile

55


Political competition with multiple issues

• Two public-spending choices (X, Y) with personal taxes required to finance.

• Concentric indifference curves.

• Also derived utility from private spending Z.

• Candidate can guarantee support if point 1 is chosen.


• Initially, person 2 want more of both goods.

• The contract curve (CC) joins the preferred points 1 and 2 of voters 1 and 2 (all points are pareto efficient).

• All candidates will chose a point on the CC.

• Policy proposals on CC defeat others. B>>A


• Now consider, three voters required for majority voting

• E = votes from 1 and 3 but S gets votes from 1 and 2 and F gains votes from 2 and 3.

• There is no stable outcome of political competition.

• No Nash Equilibrium.• 2 candidates and 2 +

policies, there is also no Nash equilibrium.


• Circumstances that would only occur incidentally.

• A unique stable equilibrium of majority voting at point 2.


• Principled political behavior

• Voter 1 and 3 are principled about low spending and won’t defect.


• Commitment to principle, whether by candidates or voters, results in policy stability.

• The incentive to form “political parties”• Expressive voting (voting to identify with a

candidate or their policies) can result in stable outcomes because people do not vote if candidates’ position is too far from their own


6. Systems of voting and the Condorcet winner

• We have been considering political competition where winning candidates are chosen by majority voting

• What are the consequences of using the other voting systems?

• Although we focus on the Condorcet winner (defeats all options in pair-wise voting) as the normative principle of collective choice it neither guarantees efficiency or social justice



Disproportionality: 2015 UK Election Results

64


• Elimination two-round voting (Two Round System)• Three alternative projects (A,B and C) and three

candidates each representing one group

• In 1st round of voting, the candidate of group 2 eliminated

• The candidate of group 3 wins in the 2nd round and project C is financed

• The Condorcet winner is B – two round elimination does not ensure the Condorcet winner.


• Plurality or simple majority voting (any majority is sufficient)

• With two candidates, plurality voting is equivalent to majority voting

• The winning project A under plurality voting is the least favored under majority voting or is the Condorcet loser

• Again, project B is the Condorcet winner


• Proportional representation

• No project has a majority but B is the Condorcet winner• With A<B<C, natural coalitions consist of the middle party

of group 2 together with one of the extremes• Natural coalition partners are 2 and 3.


Differing Results• Under two-round elimination, Condorcet winner B is

eliminated in the first round and C is chosen.• Under plurality A is chosen.• Under coalitions formed through PR, B and C are

chosen – more expensive and can be most discriminatory.


• PR can reduce the tyranny of the majority by increasing the majority but can increase the burden of taxation on the minority.

• Power of small groups• PR is fairer – under plurality a party could win

49% in every constituency and not have any representation in parliament

• If a list system is used then there is a lack of personal accountability


• Preferential voting• Similar to two-round but only one vote.

• Project C is eliminated in the first round• Party 3 then votes for B and B wins.


• Project B is eliminated in the first round• Party 2 then votes for C and C wins but B is the

Condorcet winner.


• Desirable that an increase in popularity is rewarded. In preferential systems, an increase in popularity can lead to defeat


• Approval voting – vote for two projects• Voters in group 1 have incentive to avoid C and groups 2

and 3 have an incentive to avoid outcome A

• The votes are A=3, B=7 and C=4.• Approval voting provides insurance against adverse

outcomes• B, which is the Condorcet winner under majority voting,

wins


• Another example of approval voting• The Condorcet winner is not chosen

• When all voters vote for their first two preferred alternatives, D wins, not the Condorcet winner B.


• Uncertainty and strategic decisions affect the outcome of approval voting

• The 5 voters in group 1 may not know they form a majority and may vote against C instead, splitting their vote and allowing B to win.


• Approval voting allows voters the personal satisfaction of voting for their true first choice, even if the likelihood of that choice winning is low

• Under approval voting, strategic decisions arise regarding how many candidates to vote for


Case Study: The Irish System – Dublin Euro Election 2009

Source: www.electionsireland.org

http://www.electionsireland.org/


7. Voting on Income Redistribution

• Voting on public goods can result in Pareto-improvement (everyone is better off because a public good is supplied, or no one loses)

• Voting on income redistribution contradicts Pareto-improvement (the transfer of money from one to another increases the utility of one person and decreases the utility of the other)

• Tyranny of the majority (51%) can lead to redistribution


Public Finance for Private Goods

• Why is majority voting used to decide on public finance for private goods (cash transfers)?

• Collective spending for private consumption results in inefficient over-spending

• Example: Restaurant bill when agree to share cost


Majority voting and income redistribution

• A coalition of 51% of the voters can decide the destination of the transfers (to them) and that the 49% pay taxes for the transfers.

• Majority voting is the least exploitative voting rule– If you are a member of winning coalition, will want

size to be as small as possible– If you are a member of losing minority, will want size

to be as large as possible– Coalition instability, easy to bribe a few members of

the majority to join you, but they wont if binding guarantees of a new stability are not available


• While abilities are usually normally distributed, income before taxes, and more so wealth, is usually skewed

• How much income redistribution will take place through majority voting, if voters choose taxation and income redistribution to maximize their own benefit?– 100% appropriation by 51% - not feasible


• Rules that we impose for better understanding of taxation and redistribution:– The same tax rate applies to everybody– Everyone receives an equal share of redistributed tax

revenue– After income redistribution, the original high-income

minority can be no worse off than the original low-income majority

• What is the outcome of majority voting when people vote on income redistribution under these conditions?


• Assume no distortionary effects of taxation (no labour-leisure substitution and no excess burden of taxation)

• With n persons earning different individual incomes yi, a proportional tax rate t yields total tax revenue

• With ya indicating average earned pre-tax income, the equal distribution s of tax revenue received by each person is

1

n

ii

R t y=

= å

1

n

iai

yRs t tyn n

=

æ öç ÷ç ÷= = =ç ÷ç ÷è ø

å


• We proceed as if there is no excess burden of taxation• y is therefore independent of the tax rate

• The outcome of voting is

• Since ya>ym, the majority supports a tax of 100 percent

100% 0%a at if y y OR t if y y= < = >


• Redistributing the tax revenue equally results in

• With no excess burden of taxation and no discrimination possible in the rate of income taxation or in distribution of tax revenue– the outcome of majority voting is maximally

appropriative taxation and post-tax income equality

, 1,....,aiy y i n= =


• Why is majority voting not maximally appropriative?

1. The excess burden of taxation and the Laffer curve2. Low-income voters understand work-leisure substitution

effects and the excess burden of taxation, and the effect of taxation on the tax base

3. Economic mobility and economic growth lead people to anticipate people being better off in the future

4. Equalizing change may be anticipated in the future income distribution

5. Low-skilled immigration


6. The number of issues7. The right of natural possession8. Ideology

– Ideology can lead voters to reject high taxation and extensive income redistribution

– Low-income voters may believe that pre-tax earned personal incomes reflect personal effort and merit

9. Are high incomes due to luck or effort?– People in the U.S. are more inclined to believe in effort whereas

people in Europe are more inclined to believe in luck


The franchise and income redistribution

• Historically, when democracy was first introduced, the franchise (or right to vote) was restricted to owners of property

• When income from labor and capital replaced land as the primary source of income, the franchise was extended, first to men and then to women

• Should only people who are net contributors to the government revenue be permitted to vote?

• Should government bureaucrats have the right to vote?• Evidence indicates that government spending increased

after women received the right to vote


The decision to vote• We return to the question: why do people vote, given

that their vote is not decisive– Instrumental voting and expressive voting– Voting to avoid regret– Political positions in personal reference groups– Should voting be compulsory?– The weather and voting– More people vote when opinion polls indicate a close political

contest– Anonymous voting reduced voter turnout– High-income people and voting (is expressive voting a normal

good)• Propensities or likelihoods of different people voting

affect redistribution of income


Who benefits from income redistribution?

• To determine who benefits from income redistribution, we compare the initial pre-tax market-determined income distribution and the income distribution after taxes and redistribution

• In high-income democratic societies– Income redistribution is greater when initial inequality

in market-determined incomes is greater– The median voter (the person with the median income

in the income distribution) is not a beneficiary of publicly financed income transfers

– Beneficiaries of government redistribution are low-income people


• Why does the median voter in democratic societies not benefit from majority voting on income redistribution?– Is the reason that not everybody votes? No as

those that benefit don’t vote. – Do objectives of social justice determine

income redistribution?


• The median voter may not be in the majority coalition


• Median voters or the middle class disproportionately and systematically benefit from public spending on public goods

• Director’s law: Why does the middle class benefit disproportionately from public financed public goods but not from redistribution of income?– Expressive voting showing concern for the poor is inconsistent

with income transfers to the middle class – Benefits from public goods and tax deductions are not targeted

and are thus in principle available to everybody and thus are consistent with expressive voting

– The middle class benefits disproportionately from tax deductions


Romney’s Characterisation• The political economy of redistribution

rarely is explicitly spoken about modern western politics.

• The 2012 recent election in the US is an exception.

• A speech by Candidate Mitt Romney provides some context:– https://www.youtube.com/watch?v=M2gvY2w

qI7M94

https://www.youtube.com/watch%3Fv=M2gvY2wqI7M


Conclusions

• Aggregation of personal decisions through voting ensures neither efficiency nor social justice

• When the choice is between personal market decisions and collective decisions of voting, market decisions avoid the tyranny of the majority

• Jurisdictions of people with like preferences facilitate efficient and socially just voting outcomes

• When jurisdictions consist of people with diverse objectives, democratic institutions with checks and balances and rotation in political office are superior to any other alternative for making collective decisions

Documents

EC3161 Spring 2020 - Michael Kingmichaelking.ie/wp-content/uploads/2020/01/EC3161-L1-Voting.pdf · Horizontal and vertical equity Ricardian Equivalence Fiscal illusion Module 1 Review