Redistributing income under proportional representation

Although majoritarian decision rules are the norm in legislatures, relatively few democracies use simple majority rule at the electoral stage, adopting instead some form of multiparty proportional representation. Moreover, aggregate data suggest that average income tax rates are higher, and distributions of posttax income flatter, in countries with proportional representation than in those with majority rule. While there are other differences between these countries, this paper explores how variations in the political system per se influence equilibrium redistributive tax rates and income distributions. A three-party proportional representation model is developed in which taxes are determined through legislative bargaining among successful electoral parties, and the economic decision for individuals is occupational choice. Political-economic equilibria for this model and for a two-party, winner-take-all, majoritarian system are derived and compared.