On existence of pure-strategy equilibrium with endogenous income

Abstract

It is well known that in a voting-over-income-taxation game, there exists no pure strategy equilibrium when voters’ incomes are exogenous (i.e., when individual voters make only consumption choices). I prove that in an environment with endogenous income (i.e., where individual voters make labor-leisure choices, in addition to consumption choices) and candidates propose marginally progressive taxes, it is possible to get existence of a pure-strategy equilibrium tax schedule.