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Diversity and Redistribution

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Author Info
Raquel Fernández
Gilat Levy

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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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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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Handle: RePEc:nbr:nberwo:11570

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Find related papers by JEL classification:
D30 - Microeconomics - - Distribution - - - General
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!]
  2. Persson, Torsten & Tabellini, Guido, 1997. "Political Economics and Macroeconomic Policy," CEPR Discussion Papers 1759, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Levy, Gilat, 2004. "A model of political parties," Journal of Economic Theory, Elsevier, vol. 115(2), pages 250-277, April. [Downloadable!] (restricted)
  4. 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.
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  5. Alesina, Alberto & Baqir, Reza & Easterly, William, 2000. "Redistributive Public Employment," Journal of Urban Economics, Elsevier, vol. 48(2), pages 219-241, September. [Downloadable!] (restricted)
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  6. Alesina, Alberto & Baqir, Reza & Easterly, William, 1999. "Public goods and ethnic divisions," Policy Research Working Paper Series 2108, The World Bank. [Downloadable!]
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  7. Gilat Levy, 2005. "The Politics of Public Provision of Education," The Quarterly Journal of Economics, MIT Press, vol. 120(4), pages 1507-1534, November. [Downloadable!] (restricted)
  8. Ray, Debraj & Vohra, Rajiv, 1997. "Equilibrium Binding Agreements," Journal of Economic Theory, Elsevier, vol. 73(1), pages 30-78, March. [Downloadable!] (restricted)
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  9. Besley, Timothy J. & Coate, Stephen, 2001. "Issue Unbundling via Citizens' initiatives," CEPR Discussion Papers 2857, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. 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.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Lindqvist, Erik & Östling, Robert, 2006. "Political Polarization and the Size of Government," Working Paper Series in Economics and Finance 628, Stockholm School of Economics, revised 02 Jul 2007. [Downloadable!]
    Other versions:
  2. Anesi, Vincent & De Donder, Philippe, 2007. "Party Formation and Racism," IDEI Working Papers 450, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
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