Efficiency, Welfare, and Political Competition

Abstract

We study political competition in an environment in which voters have private information about their preferences. Our framework covers models of income taxation, public-goods provision or publicly provided private goods. Politicians are vote-share-maximizers. They can propose any policy that is resource-feasible and incentive-compatible. They can also offer special favors to subsets of the electorate. We prove two main results. First, the unique symmetric equilibrium is such that policies are surplus-maximizing and hence first-best Pareto-efficient. Second, there is a surplus-maximizing policy that wins a majority against any welfare-maximizing policy. Thus, in our model, policies that trade off equity and efficiency considerations are politically infeasible.