Many different inefficiencies of candidates and voters have been discussed, but let's go back to the inefficiency of majority rule to reiterate some points. Democracy is regarded as a means for a collective to cause public goods to be supplied. A democratic government allows consumers to communicate their demands in a different way-by voting, as has been discussed. It is almost impossible for majority voting to result in the optimal supply of a public good. Most voters will be dissatisfied with the amount that is supplied wanting either more or less.

Pure public goods should be supplied up to the point that marginal collective benefits equals the marginal cost. Economists tend to identify the most efficient quantity pretty well, but not the most efficient distribution of gain-in that they don't really care who receives the gain. However, people are concerned with distribution. In the case of a large collective, where public goods are supplied by means of a representative democratic national government, the cost burden is in the form of mandatory taxes. How it is divided among members of the collective is decided by the legislator who was elected. Yet, if members of a collective make decisions using simple majority rule will their decisions be efficient in the economic sense?

    Assume that a decision about how much to supply is made by majority rule. Under this, the quantity preferred by the median voter would win the vote since some would have preferred more and others less. However, given realistic assumptions, there will be neither efficiency nor full satisfaction with the quantity supplied except by coincidence. Under the equal sharing rule, the size of the member's tax bill rises with the quantity of the public good supplied. Efficiency and full satisfaction would be achieved only if all demands were alike. In this ideal, all voters would be the median voter. The idea is that once a rule is established, the quantity is chosen by the median voter. The only way that complete satisfaction with the collective decision could be achieved is to vary the tax price to whether a voter-consumer has a low or high demand. Unfortunately, by definition a rigid rule does not allow this.

Efficiency and satisfaction under an income tax is another interesting topic. The rational for having an income tax in the first place is so that people who would have earned high incomes in the market economy without tax should pay a higher tax than those who would have earned lower incomes. However, ideally it is hard to do this since people always look for ways to avoid the tax. Some can do this better than others. Defining income also presents a problem. If, for example, income is defined as money, then people will shift to self-sufficient activities and barter. They'd try to define it as satisfaction received from a flow of activities. Of course it then becomes hard to decide what a fair tax is. They'd have to be able to compare the value received from various activities. Plus enforcement is hard to do. They have to know how much someone makes before they can make a fair assessment of how much income a person should be taxed on. As mentioned, some people can conceal how much they make quite well. Furthermore, some people can defend themselves better than others against the charge of tax evasion. Furthermore, for some it is more beneficial to evade the taxes than to pay them-with the help of a good lawyer or bribes. Therefore, not only can a real tax system not achieve the ideal that is implied in the concept of an income tax, real-world democratic governments typically use their tax systems for other purposes. For example, it has often been found that legislators may set income taxes lower for families than individuals because those with families have a stronger voting force to offer. In general, there are quite a number of things that legislators and other government officials may do.

The previous ideas demonstrate how simple-majority collective decisions in the case of a single public good under direct democracy are almost always inefficient. Collective-decided tax-sharing schemes would never lead the median voter to choose the optimal amount of the public good. Both distribution of preferences among voters and income distribution assure that there is inefficiency (in the economists' sense of the word). And it was shown that with majority-rule; collective-decision making can cause goods to be supplied even though some people, even the majority, may be harmed by the financial arrangement.

What happens if a simple majority (in a democracy) does not choose the theoretically efficient quantity of the pure public good? The possibility of inefficiency means that there can be gains from trade, thus this is what people would like do to try to minimize the inefficiencies. If many people are going to gain, then the incentive to buy the median voter's vote increases, as does the incentive to block votes by those who might lose out. Thus as we can see, vote buying may also lead to inefficiencies of its own (if for example the median voter's quantity desired was already too large and it was bought by those who wanted more). However, democracies have laws against buying and selling votes, as was previously discussed.

 

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