Strategic voting on tax policy: Direct vs representative democracy in the laboratory

This paper aims to distinctly demonstrate the prevalence and impact of strategic voting within representative democratic systems as compared to direct democracy, focusing on tax policy decisions. Through a comparative analysis, we explore how the structure of the voting system influences the strategic behaviour of voters concerning their taxable income. Our findings indicate that representative democracy inherently encourages strategic voting more than direct democracy, primarily due to the delegation process and its interaction with local median voters. This study meticulously analyses how pivotal voters in both the wealthiest and poorest electoral districts demonstrate notable sincerity in their voting behaviour, contrasting sharply with the strategic tendencies of the “median of the medians.” Additionally, we observe that higher income tax rates significantly enhance resources available for redistribution, thus intensifying incentives for strategic voting. Conversely, greater benefits from public expenditures promote sincerity among voters. Furthermore, both electoral systems align with Meltzer and Richard's (1981) predictions. By highlighting these dynamics, our paper contributes to a better understanding of the implications of democratic structures on voter behaviour and fiscal policy outcomes, underscoring the critical influence of voting systems on strategic decision-making in taxation. • Differentiating strategic and sincere voting is crucial for collective decisions. • Representative democracy fosters strategic voting, influenced by delegation. • Higher tax rates intensify strategic voting. • Sincere voting is positively linked to public expenditure benefits. • Institutional design is crucial to align tax policies with voters' true preferences.