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The political economy of targeting

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  • Philippe De Donder
  • Jean Hindriks

Abstract

One of the most widely used method of targeting is to reduce welfare benefits as income rises. Although the need for such targeting is clear enough, it also entails two important difficulties. Firstly, the prospect for the recipients of losing part of their benefits if they were to earn more can be a deterrent to work harder. Secondly, by reducing the number of recipients, targeting reduces the political support for taxation and redistribution. The purpose of this paper is to study the voting equilibrium of the degree of targeting and the level of taxation in an economy where labour supply is variable. The analysis reveals that targeting may be fatal for redistribution even though it rejects strictly less than the richest half of the population, and that it is not possible for a coalition of the extremes to form and reject the middle income group from the welfare system. Moreover, because targeting affects labour supply, we find that Pareto improvements are possible when targeting is either “too low” or “too high”. We also find that voting simultaneously over taxation and targeting is favourable to the poor in the sense that they can converge to their most-preferred policy by successively forming a majority coalition with the rich to increase targeting and with the middle to increase taxation. Copyright Kluwer Academic Publishers 1998

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File URL: http://hdl.handle.net/10.1023/A:1005023531490
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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 95 (1998)
Issue (Month): 1 (April)
Pages: 177-200

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Handle: RePEc:kap:pubcho:v:95:y:1998:i:1:p:177-200

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Web page: http://www.springerlink.com/link.asp?id=100332

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  1. Slemrod, Joel & Yitzhaki, Shlomo & Mayshar, Joram & Lundholm, Michael, 1994. "The optimal two-bracket linear income tax," Journal of Public Economics, Elsevier, vol. 53(2), pages 269-290, February.
  2. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December.
  3. Philippe De Donder, 2000. "Majority voting solution concepts and redistributive taxation," Social Choice and Welfare, Springer, vol. 17(4), pages 601-627.
  4. Guesnerie, Roger & Seade, Jesus, 1982. "Nonlinear pricing in a finite economy," Journal of Public Economics, Elsevier, vol. 17(2), pages 157-179, March.
  5. Moffitt, Robert, 1985. "A problem with the negative income tax," Economics Letters, Elsevier, vol. 17(3), pages 261-265.
  6. De Donder, P & Le Breton, M & Truchon, M, 1996. "A Set-Theoretical Comparison of C2 Social Choice Correspondences," Papers 9624, Laval - Recherche en Energie.
  7. Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, vol. 7(2), pages 203-235, April.
  8. Hindriks, J., 1994. "The Targeting of Social Security : A Tax Reform Approach," Papers 148, Notre-Dame de la Paix, Sciences Economiques et Sociales.
  9. Webb, Steven, 1995. "Social Security Policy in a Changing Labour Market," Oxford Review of Economic Policy, Oxford University Press, vol. 11(3), pages 11-26, Autumn.
  10. Alberto Alesina & Philippe Weil, 1992. "Menus of Linear Income Tax Schedules," NBER Working Papers 3968, National Bureau of Economic Research, Inc.
  11. Kramer, Gerald H., 1977. "A dynamical model of political equilibrium," Journal of Economic Theory, Elsevier, vol. 16(2), pages 310-334, December.
  12. Roger B. Myerson, 1994. "Analysis of Democratic Institutions: Structure," Discussion Papers 1095, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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