Review of Behavioral Economics > Vol 3 > Issue 1

Rational Expectations Voting in Agent-Based Models: An Application to Tax Ceilings

Andreas D. Pape, Binghamton University, USA, apape@binghamton.edu Todd Guilfoos, University of Rhode Island, USA, Nathan B. Anderson, Ropes & Gray LLP, USA, Jeffery Schmidt, Binghamton University, USA,
 
Suggested Citation
Andreas D. Pape, Todd Guilfoos, Nathan B. Anderson and Jeffery Schmidt (2016), "Rational Expectations Voting in Agent-Based Models: An Application to Tax Ceilings", Review of Behavioral Economics: Vol. 3: No. 1, pp 47-90. http://dx.doi.org/10.1561/105.00000043

Published: 20 Apr 2016
© 2016 A. D. Pape, T. Guilfoos, N. B. Anderson and J. Schmidt
 
Subjects
Taxation
 
Keywords
D72D81C81R51
VotingAgent-based Computational EconomicsUncertaintyRational Expectations
 

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In this article:
1. Introduction
2. Property Tax Background
3. Model: Rational Expectations Voting
4. Data
5. Results
6. Discussion
7. Conclusion
Appendix
References

Abstract

This paper introduces rational expectations voting into an agentbased model of collective choice. Our model is unique because it generates sophisticated forecasts of endogenous policy outcomes by computationally sampling the space of exogenous random variables. Together these forecasts generate a common prior, a joint distribution of all random variables as a function of the set of policy choices, which agents use to select the policy that maximizes their expected utility. We apply our simulated rational expectations methodology by using administrative data on property taxes from two U.S. cities to investigate how observed levels of (plausibly exogenous) tax-payment uncertainty affect collective choice. Specifically, we show that, for sophisticated risk-averse or loss-averse voters, higher levels of tax-payment uncertainty generate majority support for a binding constraint on collective choice.

DOI:10.1561/105.00000043

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