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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. Alberto Alesina & Eliana La Ferrara, 2004. "Ethnic Diversity and Economic Performance," NBER Working Papers 10313, National Bureau of Economic Research, Inc.
  2. 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.
  3. Timothy Besley & Stephen Coate, 2000. "Issue Unbundling via Citizens' Initiatives," NBER Working Papers 8036, National Bureau of Economic Research, Inc.
  4. Alesina, Alberto & Baqir, Reza & Easterly, William, 1999. "Public goods and ethnic divisions," Policy Research Working Paper Series 2108, The World Bank.
  5. Persson, Torsten & Tabellini , Guido, 1997. "Political Economics and Macroeconomic Policy," Seminar Papers 630, Stockholm University, Institute for International Economic Studies.
  6. Besley, Timothy & Coate, Stephen, 1997. "An Economic Model of Representative Democracy," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 85-114, February.
  7. 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.
  8. Levy, Gilat, 2004. "A model of political parties," Journal of Economic Theory, Elsevier, vol. 115(2), pages 250-277, April.
  9. Ray, D. & Vohra, R., 1993. "Equilibrium Binding Agreements," Papers 21, Boston University - Department of Economics.
  10. John E. Roemer, 1999. "The Democratic Political Economy of Progressive Income Taxation," Econometrica, Econometric Society, vol. 67(1), pages 1-20, January.
  11. Alesina, Alberto & Baqir, Reza & Easterly, William, 2000. "Redistributive Public Employment," Journal of Urban Economics, Elsevier, vol. 48(2), pages 219-241, September.
  12. 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.
  13. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August.
  14. Austen-Smith, David & Wallerstein, Michael, 2006. "Redistribution and affirmative action," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1789-1823, November.
  15. Gilat Levy, 2005. "The Politics of Public Provision of Education," The Quarterly Journal of Economics, MIT Press, vol. 120(4), pages 1507-1534, November.
  16. Osborne, Martin J & Slivinski, Al, 1996. "A Model of Political Competition with Citizen-Candidates," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 65-96, February.
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