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Redistributive Politics and Economic Efficiency

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Author Info
Dixit, Avinash K
Londregan, John

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Abstract

The political process often compensates the losers from technical change or international competition in an economically inefficient way, namely by subsidizing or protecting declining industries instead of encouraging the movement of resources to other more productive uses. We find that a dynamic inconsistency in the game of redistributive politics contributes to this outcome. To achieve economically efficient outcomes, it is necessary that those making economically inefficient choices are not given offsetting transfers. But the political process distributes income on the basis of political characteristics, which are in general different from the economic characteristics that are rewarded by the market. We identify circumstances in which the inefficient choosers have desirable political characteristics, and therefore are immune from threats of having to face the economic consequences of their choices.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1056.

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Date of creation: Nov 1994
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Handle: RePEc:cpr:ceprdp:1056

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Related research
Keywords: Efficiency Interest Groups Occupation Choice Redistribution

Other versions of this item:

Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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  13. Echenique, Federico & Eguia, Jon X., 2005. "An explanation of inefficient redistribution: Transfers insure cohesive groups," Working Papers 1234, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  14. Sebastian M. Saiegh & Mariano Tommasi, 1999. "Why is Argentina’s Fiscal Federalism so Inefficient? Entering the Labyrinth," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 169-209, May. [Downloadable!]
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