Political Parties and Fiscal Policy

The Objective of Parties

In reality, we do not expect perfect governments or representative consumers. In a more realistic approach, we may consider imperfect governments or heterogeneous agents. In particular, bargaining among politicians, policymakers, and private agents determines policy. In such a political process, political parties have an important role. Their behavior is also affected by political institutions. This section investigates the behavior of political parties.

Generally, the political party has two objectives. One is to stay as the ruling party as long as possible; thus, any party wishes to obtain support from voters as much as possible. The party’s objective becomes the same as that of the majority of voters. Another objective is to pursue the party’s own preferences. In this regard, different parties have different objectives and may represent the different interests of various groups of economic agents; consequently, each party has a partisan objective.

If a politician is only concerned with maintaining the status quo, her or his objective is to win the election. If the politician has a partisan preference or reflects the interests of various interest groups, she or he regards winning the election as a means of realizing her or his own objective. Generally, these two objectives coexist. Even a partisan politician is happy if she or he is likely to win: any policies are imposed only by the ruling party. The difference between the two objectives originates from differences among politicians’ objective functions. If politicians purely seek the ruling position, they have the same objective, which is the interest of the majority of voters. However, partisan politicians have different objectives.

 
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