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Inequality and size of the government when voters have other regarding preferences

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  • Sanjit Dhami

    ()

  • Ali al-Nowaihi

    ()

Abstract

The celebrated relation between inequality and redistribution is based on selfish voters who care solely about own-payoffs. A growing empirical literature highlights the importance of other regarding preferences (ORP) in voting over redistribution. We reexamine the relation between inequality and redistribution, within a simple general equilibrium model, when voters have ORP. Our contribution is five-fold. First, we demonstrate the existence of a Condorcet winner. Second, poverty can lead to increased redistribution (which implies a countercyclical social spending to GDP ratio). Third, we show that disposable income 'strongly median-dominates' factor income. Fourth, we show that fair voters respond to an increase in 'strong median-dominance' by engaging in greater redistribution. Fifth, an illustrative empirical exercise using OECD data points to the importance of fairness in explaining redistribution.

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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 08/23.

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Date of creation: Jul 2008
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Handle: RePEc:lec:leecon:08/23

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Related research

Keywords: Redistribution; Other regarding preferences; Single crossing property; Income inequality; Difference dominance; Median dominance; American Exceptionalism.;

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  1. Tyran, Jean-Robert & Sausgruber, Rupert, 2006. "A little fairness may induce a lot of redistribution in democracy," European Economic Review, Elsevier, vol. 50(2), pages 469-485, February.
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