Political Economy and Public Choice: Work It Out 1

Lets walk through the median voter theorem in a little more detail. Consider a town with three voters, Enrique, Nandini, and Torsten. The big issue in the upcoming election is how high the sales tax rate should be. As youll learn in macroeconomics (and in real life), on average, a government that wants to do more spending has to bring in more taxes, so higher permanent taxes is the same as higher government spending. Enrique wants low taxes and small government, Nandini is in the middle, and Torsten wants the biggest town government of the three. Each one is a stubborn person, and his or her favorite positionwhat economic theorists call the ideal pointnever changes in this problem. Their preferences can be summed up like this, with the x denoting each persons favorite tax rate:

a. Suppose there are two politicians running for office, N and O (so ignore P for now). For which candidate will each voter vote? Place each voter according to the candidate for whom they will vote. Who will win the election?

Candidate N

Candidate O

Candidate

will win the election.

b. O drops out of the campaign after the local paper reports that he hasnt paid his sales taxes in years. P enters the race, pushing for higher taxes, so its N vs. P. Who will vote for N? Who will vote for P? Again, place each voter according to the candidate for whom they will vote. Who will win now?

Candidate N

Candidate P

Answer Bank

Nandini

Torsten

Enrique

Candidate

will win the election.

Answer Bank