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Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition

Timothy Besley and Anne Case
The American Economic Review
Vol. 85, No. 1 (Mar., 1995), pp. 25-45
Stable URL: http://www.jstor.org/stable/2117994
Page Count: 21
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Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition
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Abstract

This paper develops a model of the political economy of tax-setting in a multijurisdictional world, where voters' choices and incumbent behavior are determined simultaneously. Voters are assumed to make comparisons between jurisdictions to overcome political agency problems. This forces incumbents into a (yardstick) competition in which they care about what other incumbents are doing. We provide a theoretical framework and empirical evidence using U.S. state data from 1960 to 1988. The results are encouraging to the view that vote-seeking and tax-setting are tied together through the nexus of yardstick competition.

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