INCUMBENT BEHAVIOR - VOTE-SEEKING, TAX-SETTING, AND YARDSTICK COMPETITION

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