We attempt to examine the effect of benefit misperception on tax policy making in a more general probabilistic voting framework. In a representative democracy, candidates are thought to be judged by voters on the basis of both policy and non-policy or random policy characteristics in voters' voting decision. We include misperceived benefit levels as a random policy variable which is separate from tax policy. We suppose that taxes and benefits are separate in relation, and voters have asymmetric perception about tax and benefit policies proposed by candidates. Thus, voters may have misperception, or inaccurate perception, of the benefits from public services because of its invisibility. By employ ‘probabilistic linkage’ between tax and benefit policies, we first examine the effect of benefit misperception on tax policy making in a general probabilistic voting framework. Then, we extend our earlier paper to include the benefit misperception degree, policy salience, and tax administration costs, and examine their effects on the political opposition from taxation.

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This paper analyzes how international financial liberalization may affect the determination of domestic public policies, taking into account the political reality of developing countries. In developing countries, rich individuals who are the owners of capital often monopolize the power of political decision. It is shown that, under this non-democratic political regime, financial liberalization may lead to the decline of domestic public investment. This occurs because financial liberalization makes the domestic return on capital linked to the world interest rate and lessens the rich individuals' incentive' to promote the productivity of domestic production. If poor individuals have only labor as an internationally immobile production factor, the decreased domestic productivity caused by the decline of public investment depresses their income and welfare. Specifically, it is shown that in the financially closed economy the desired levels of public investment could coincide between the rich and the poor, but in the open economy they may radically diverge. This result implies that, under financial liberalization, there may emerge a class conflict over the determination of public investment. Further, in our model, the decreased domestic productivity may trigger off capital outflows from developing countries. Thus, this paper may also provide a possible explanation to the capital flow paradox that capital moves from capital-scarce developing countries to capital-abundant developed countries.

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