Taxes,Budgetary Rule and Majority Voting

This paper studies majority voting outcomes fora specific class of two-dimensional policies. One policyinstrument influences efficiency and the other redistribution.Absent the political process, the two dimensions can beaddressed separately. With a two dimensional vote, the twoaspects will interact in a non-trivial way. The illustrativepolicy we consider, requires taxing an externality-generatinggood and determining a budgetary rule which specifies theproportions of the tax proceeds that go to wage earners and tocapital owners. We show: First, a sequential vote wherein thetax rate is determined first and the budgetary rule second,always possesses an equilibrium and that this equilibrium isthe median-endowed individual's most-preferred policy. Second,the reverse sequential choice implies that the median-endowedindividual may, but need not, be decisive. Third, the``Shepsle procedure'' also implies that the equilibrium is thepolicy most favored by the median individual. Fourth, thisequilibrium constitutes, under certain circumstances, theCondorcet winner for the unrestricted simultaneous votinggame.