Income Inequality and the Size of the Public Sector
AbstractThis paper focuses on the question of how income inequality between two jurisdictions impacts upon government decision-making affecting the size of the public sector. We model policy choices as the outcome of regional representatives' negotiations in the legislature. We show that the more unequal income distribution is, the greater the degree of inefficiency in terms of under-provision of public goods. Particularly, a divergent income trend between rich and poor makes interregional redistributive conflicts more dramatic. Consequently, the larger the income disparity, the smaller the public sector. A wealthier economy as a result may lead to a relatively smaller public sector when income disparity increases.
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Bibliographic InfoPaper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 603.
Date of creation: 07 Nov 2005
Date of revision:
Postal: Discussion Papers Administrator, Department of Economics, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, U.K.
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-11-19 (All new papers)
- NEP-PBE-2005-11-19 (Public Economics)
- NEP-POL-2005-11-19 (Positive Political Economics)
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