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Income Inequality and the Size of the Public Sector

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  • Giuranno, Michele Giuseppe

Abstract

This 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.

Suggested Citation

  • Giuranno, Michele Giuseppe, 2005. "Income Inequality and the Size of the Public Sector," Economics Discussion Papers 8895, University of Essex, Department of Economics.
    • Handle: RePEc:esx:essedp:8895
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    Cited by:

    1. Michele Giuseppe Giuranno, 2009. "Regional Income Disparity and the Size of the Public Sector," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(5), pages 697-719, October.
    2. Michele Giuranno, 2009. "Pooling Sovereignty and Subsidiarity Principle," Discussion Papers 09/01, Department of Economics, University of York.

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