Political Influence, Economic Interests and Endogenous Tax Structure in a Computable Equilibrium Framework: With Application to the United States, 1973 and 1983
43 Pages Posted: 5 Feb 2002 Last revised: 16 May 2019
A full understanding of public affairs requires the ability to distinguish between the policies that voters would like the government to adopt, and the influence that different voters or group of voters actually exert in the democratic process. We consider the properties of a computable equilibrium model of a competitive political economy in which the economic interests of groups of voters and their effective influence on equilibrium policy outcomes can be explicitely distinguished and computed. The model incorporates an amended version of the GEMTAP tax model, calibrated to data for the United States for 1973 and 1983. Emphasis is placed on how the aggregation of GEMTAP households into homogeneous groups affects the numerical representation of interests and influence for representative members of each group. Experiments with the model suggest that the changes in both interests and influence are important parts of the story behind the evolution of U.S. tax policy in the decade after 1973.
Keywords: Political competition, probabilistic voting, political influence, tax policy, public goods, GEMTAP, computable equilibrium
JEL Classification: D7, H20, H41, C68
Suggested Citation: Suggested Citation