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Inequality and Political Consensus

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  • Grüner, Hans Peter
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    Abstract

    This Paper develops a model of political consensus in order to explain the missing link between inequality and political redistribution. Political consensus is an implicit agreement not to vote for extreme policy proposals. We show that such an agreement may play an efficiency-enhancing role. Voters anticipate that voting for extremist parties increases policy uncertainty in the future. A political consensus among voters reduces policy uncertainty because self-interested politicians propose non-discriminatory policies. We study how much inequality can be sustained in a democracy and how the limits to redistribution vary with initial inequality. We find that the bounds of the set of political equilibria may react in a fundamentally different manner to changes in exogenous variables than do the policy variables in the one-dimensional, one-shot game. More initial inequality need not lead to more redistribution from the rich to the poor. The maximum amount of redistribution decreases with inequality if (and only if) agents are sufficiently patient. In this case inequality is politically self-sustaining.

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    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4159.

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    Date of creation: Dec 2003
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    Handle: RePEc:cpr:ceprdp:4159

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    Related research

    Keywords: comparative statics in political economy; inequality; policy uncertainty; political concensus; representative democracy;

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    References

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    14. Coughlin, Peter & Nitzan, Shmuel, 1981. "Electoral outcomes with probabilistic voting and Nash social welfare maxima," Journal of Public Economics, Elsevier, vol. 15(1), pages 113-121, February.
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    18. Gene Grossman & Elhanan Helpman, 1994. "Electoral Competition and Special Interest Politics," NBER Working Papers 4877, National Bureau of Economic Research, Inc.
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    20. Andrew Caplin & Barry Nalebuff, 1990. "Aggregation and Social Choice: A Mean Voter Theorem," Cowles Foundation Discussion Papers 938, Cowles Foundation for Research in Economics, Yale University.
    21. Grüner, Hans Peter & Schils, Ruediger, 2002. "Capital Redistribution and the Market Allocation of Firm-Ownership," CEPR Discussion Papers 3130, C.E.P.R. Discussion Papers.
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