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Diversity and Redistribution

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  • Raquel Fernández
  • Gilat Levy

Abstract

This paper examines how preference heterogeneity affects the ability of the poor to extract resources from the rich. We study the equilibrium of a game in which coalitions of individuals form parties, parties propose platforms, and all individuals vote, with the winning policy chosen by plurality. Political parties are restricted to offering platforms that are credible (in that they belong to the Pareto set of their members). The platforms specify the values of two policy tools: a general redistributive tax which is lumpsum rebated and a series of taxes whose revenue is used to fund specific (targeted) goods. We show that taste conflict first dilutes but later reinforces class interests. When the degree of taste diversity is low, the equilibrium policy is characterized by some amount of general income redistribution and some targeted transfers. As taste diversity increases in society, the set of equilibrium policies becomes more and more tilted towards special interest groups and against general redistribution. As diversity increases further, however, only general redistribution survives.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11570.

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Date of creation: Aug 2005
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Publication status: published as Fernandez, Raquel and Gilat Levy. "Diversity and Redistribution." Journal of Public Economics 92, 5-6 (June 2008): 925-43.
Handle: RePEc:nbr:nberwo:11570

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  1. Persson, T. & Tabellini, G., 1997. "Political Economics and Macroeconomic Policy," Papers 630, Stockholm - International Economic Studies.
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  8. David Austen-Smith & Michael Wallerstein, 2003. "Redistribution in a Divided Society," Discussion Papers 1362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1203-50, November.
  10. Austen-Smith, David & Wallerstein, Michael, 2006. "Redistribution and affirmative action," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1789-1823, November.
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  12. Alberto Alesina & Eliana La Ferrara, 2004. "Ethnic Diversity and Economic Performance," Development Working Papers 193, Centro Studi Luca d\'Agliano, University of Milano.
  13. Tim Besley & Stephen Coate, . ""An Economic Model of Representative Democracy''," CARESS Working Papres 95-02, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  14. Gilat Levy, 2005. "The Politics of Public Provision of Education," The Quarterly Journal of Economics, MIT Press, vol. 120(4), pages 1507-1534, November.
  15. Alberto Alesina & Edward Glaeser & Bruce Sacerdote, 2001. "Why Doesn't The US Have a European-Style Welfare State?," Harvard Institute of Economic Research Working Papers 1933, Harvard - Institute of Economic Research.
  16. Levy, Gilat, 2004. "A model of political parties," Journal of Economic Theory, Elsevier, vol. 115(2), pages 250-277, April.
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