Essays on Political Economy

This thesis studies theoretically and experimentally voting decisions and their welfare implications in three chapters.

Chapter 2 discusses the consequences of heterogeneous beliefs on voting behaviour and the welfare implications driven by them. We assume an asymmetric change in voters’ beliefs about the ability of politicians to govern after an implicit negative economic shock. Voters lose faith in the incumbent politician and trust an outsider challenger without prior office experience. Using an electoral competitionmodel, we provide a connection between voters’ beliefs and the post-shock equilibrium policies. Moreover, our welfare analysis shows that competition may under-provide public goods compared to a utilitarian social planner, depending onvoters’ belief distribution regarding the challenger politician.

Chapter 3 explores the role of identity in voters’ decision to retain corrupt politicians. We build up a model of electoral accountability with pure moral hazard and bring it to the lab. Politicians must decide whether to invest in a public project with uncertain returns or keep the funds for themselves. Voters observe the outcome of the project but not the action of the politician. We run two treatments; a control and a treatment where subjects are assigned an identity. Our main result is that, upon observing a failed project, voters approve politicians of their same identity group more often than in the control, and compared to politicians of a different group.

Chapter 4 introduces a general median voter model of linear taxation with voters having different valuations of public expenditure, according to their income. Moreover, we assume non-quasi-linear preferences and we allow for distortive taxation. We discuss the welfare implications of these different assumptions separately and we see that competition might under-provide public goods, which comes in contrast with the well-known result of the literature, where competition always leads to over-provision, assuming a rightly-skewed income distribution.