Residents of a city vote directly over the level of public spending. There are 3005 voters in the city. Voters differ in their income Y : the mean income of the voters is $50, 000 and the median income is $40, 000. Each voter has same preferences, represented by the utility function U(y, G) = ln y + ln G where y is the residents’ after-tax income and G is the total level of public spending. Public spending is financed by a head tax t.
(a) Set up the voter’s utility in terms of the tax rate being chosen. Are voter’s preferences single peaked?
(b) If the Median Voter Theorem applies, what tax level is the Condorcet winner?
(c) Suppose now that the level of spending G is being voted on. What level of public spending would be chosen according to majority rule?