The name is absent

political groups. Finally, we present (Section 6) our data and results from empir-
ical tests of the theoretical predictions. Conclusions and suggestions for further
work are collected at the end (Section 7).

2. The model

2.1. Economic policy

A population consists of 4 economic groups of equal size, normalized to unity and
indexed by J. Individuals in group J have preferences represented by:

V^J(q)=1-τ+H(g^J) .                      (2.1)

Here, τ is a lump sum tax constrained to be non-negative, g^J is a local public
good that only benefits economic group J, H is a well-behaved concave utility
function, and q denotes the full vector of policy instruments. Individual income
is normalized to 1 for all individuals. The government budget constraint equates
total tax revenue to total spending:

4τ=^X_J g^J+^X_P r^P ,                    (2.2)

where r^P denotes political rents (here, literally taken out of tax revenue) appro-
priated by political party P.

This is a simple and standard economic policy setting in the literature: see for
instance Persson, Roland and Tabellini (2000), Persson and Tabellini (2000). The
vector of policy instruments, q = τ, g^J , r^P , induces a three-way conflict of
interest: (1) among economic groups over the allocation of the (targeted) spending
on local public goods, g^J ; (2) between politicians and citizens at large over the
total size of political rents, Σr^P , versus (non-targeted) taxes, τ ; and, (3) among
politicians over the allocation of these rents, r^P .

A benevolent and utilitarian social planner, who assigns no value to the rents
captured by politicians, would implement the following policy (subscripts denote
partial derivatives and ^-1 an inverse function):

g^J = H^-1(1),       r^p = 0                     (2.3)

with taxes residually determined from the government budget constraint (we as-
sume an interior optimum). All groups are treated equally and the marginal

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