Taxes, budgetary rule and majority voting

This paper studies majority voting outcomes for a specific class of two-dimensional policies. The illustrative policy we consider consists of a tax on an externality-generating good and a budgetary rule specifying the pro-portions of the tax proceeds that go to wage earners and to capital owners. We show: First, a sequential vote wherein the tax rate is determined first and the budgetary rule second, always possesses an equilibrium and that this equilibrium is the median-endowed individual’s most-preferred policy. Second, the reverse sequential choice implies that the median-endowed in-dividual may, but need not, be decisive. Third, the “Shepsle procedure” and the “citizen-candidate ” framework also imply that the equilibrium is the policy most favored by the median individual. Fourth, this equilibrium also constitutes, under certain circumstances, the Condorcet winner for the unrestricted simultaneous voting game. Key words: Two dimensional majority voting, political support, existence of a Condorcet winner JEL Classification: H23, D72.