The median voter according to GARP.

• Author: Turnbull, Geoffrey K.
• Position: Generalized axiom of revealed preference

1. Introduction

   The median voter hypothesis is the proposition that local governments behave "as if" they maximize the utility of the median income voter in the jurisdiction. Although an important tool in public economic analysis, there has been no conclusive direct test of the maximization hypothesis to date. Revealed preference theory shows that any finite set of price and quantity observations satisfying the generalized axiom of revealed preference (GARP) can be rationalized by the constrained maximization of an increasing, continuous, concave utility function (Afriat 1967, 1973; Varian 1982). This paper adapts the revealed preference method to the public goods problem in order to test municipal spending data for consistency under GARP, thereby providing the first direct test of whether or not the local governments behave "as if" they maximize median voter utility.

   The median voter hypothesis represents a simple tool that is the most widely used characterization of local government behavior. Given its prominence in the literature, it is not surprising that the hypothesis itself has become the subject of scrutiny. The framework assumes direct or representative democracy without strategic behavior, in which competition among politicians ensures that the public sector bureaucracy responds efficiently to voters' desires. Public sector decision making reduces to an "as if" constrained maximization problem, a simplified picture of the outcome of collective action. Still, much of the empirical testing literature is motivated by concerns over whether the model is too simplistic. Nonetheless, it can be argued that, given its depiction as an "as if" outcome, the median voter hypothesis should be judged not by its descriptive accuracy of the public sector decision process but instead by how well it explains observed local fiscal choices.

   On this basis, the existing empirical evidence, although mixed, reveals a surprising amount of indirect support for the framework. One approach taken in the literature is to evaluate the median voter hypothesis by testing the predictive power of regression equations with median income and tax price terms for explaining state or local fiscal behavior. In this line of the literature, Inman (1978) and Deno and Mehay (1987) find that variables not associated with the median income voter do not add any significant explanatory power over and above the median voter regression model of local government spending for school districts and municipalities, respectively. Similarly, Holcombe (1980) determines that school district spending in Michigan follows the Bowen equilibrium predicted by the median voter hypothesis. McEachern (1978) concludes that state debt levels tend to follow those predicted by the median voter regression model and appear to be unaffected by whether debt issue decisions are made by direct democracy referenda or by elected representatives. Gramlich and Rubinfeld (1982) similarly find support for the "as if" median voter framework for county government spending in Michigan using individual voter survey data. On the other hand, Romer and Rosenthal (1982) show that Oregon school district spending follows neither the simple median voter hypothesis nor an alternative expanded model with bureaucratic agenda control.

   Another line of literature tests the median voter hypothesis using econometric specification tests, evaluating the statistical performance of regression models with median income and tax price variables relative to ad hoc alternative spending models. Pommerehne and Frey (1976), Pommerehne (1978), Turnbull and Djoundourian (1994), and Turnbull and Mitias (1998) take this approach to show that median voter specifications tend to dominate the ad hoc alternatives for both Swiss and U.S. municipalities, even for multidimensional collective action decisions, but not for the higher level county and state governments in the U.S.

   This paper takes a different approach to testing the median voter hypothesis. All of the above studies rely on parametric econometric methods. As such, they are really joint tests of both the underlying hypothesis and the specific algebraic forms used in the regression equations. Further, aside from using median income or tax price variables identified with the median voter, the econometric models typically do not incorporate all of the parametric restrictions of the median voter hypothesis (e.g., income-intergovernmental aids symmetry). Thus, it is not always clear if a particular study is testing the median voter hypothesis or some modification allowing for bureaucratic discretion, taxpayer fiscal illusion, or other mediating features. In contrast, this paper uses the nonparametric revealed preference theory to directly test the simplest form of the "as if" median voter utility maximization hypothesis without assuming a particular algebraic representation of preferences.

   The discussion is organized as follows. Section 2 explains the revealed preference axioms used in the study and explains how the test procedure is adapted to the public goods problem. Section 3 tests the pooled sample of medium-size cities in five Great Lakes states. The results show numerous weak axiom and transitivity violations, thereby soundly rejecting the median voter hypothesis for the pooled sample. But this simply may mean that the assumption of homogeneous tastes and other factors does not hold across the broad multistate region covered by the pooled sample. Therefore, to see if pooling matters, we partition the data by state and then conduct the revealed preference tests on each separate state sample. These tests show unambiguous support for the median voter hypothesis in two states, strong support in one state, and rejection of the hypothesis in two states.

   Section 4 looks more closely at the institutional features that might help explain the GARP violations in the data. In this section, we partition each state sample by the municipal government management structure, whether run by elected mayor-council or professional city managers. Tests of each data subset reveal that the conclusions are sensitive to these institutional factors; cities that are managed by professional managers who are hired by elected councils tend to support the median voter hypothesis, while cities that are managed directly by the elected mayor-council government tend to reject the hypothesis. Further tests also reveal, however, that once we control for population density, even the mayor-council form of city management supports the median voter hypothesis.

   Section 5 contains our concluding remarks.

2. Testing the Median Voter Hypothesis Using GARP

   The Revealed Preference Axioms

   Let x = [y g] and p = [1...