“Tax and Redustribution in a Model with Party Competition” by Kunal SENGUPTA
This paper considers the role of party competition in the choice of public policies in an economy where agents are located in different regions. The agents in a given region could also differ in their initial income. A public policy, in this set up, fas to decide on the amount of a (global) public good and a vector of region specific transfers that has to be financed by a uniform tax rate across the regions. The paper shows that (a) when there are only regional parties, the choice of a public policy coincides with the optimal policies of the rich income agents and (b) with non-regional national parties, the interest of the low income agents are reflected in the choice of policies, although, to a limited extent. In any equilibrium, the policy choice gives a positive weight to the interests of the rich income class. These conclusions are derived assuming that rich agents constitute a tiny minority of the entire economy.