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The Political Economy of Redistribution under Democracy

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  • Adam Przeworski
  • Jess Benhabib

Abstract

We ask what redistributions of income and assets are feasible in a democracy, given the initial assets and their distribution. The question is motivated by the possibility that if redistribution is insufficient for the poor or excessive for the rich, they may turn against democracy. In turn, if no redistribution simultaneously satisfies the poor and the wealthy, democracy cannot be sustained. Hence, the corollary question concerns the conditions under which democracy is sustainable. Since decisions to save are endogenous, we solve explicitly for the current growth rates given any time path of future tax rates. We find that the optimal path of redistribution chosen by the median voter under the constraint of rebellion by the poor or the wealthy consists of redistributing as much as possible as soon as possible. However, this path is time inconsistent unless voters punish governments that deviate from their promises. Democracies survive in wealthy societies, with a lower average capital stock when they are more equal.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 58.

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Date of creation: 2004
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Handle: RePEc:red:sed004:58

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Keywords: Sustainable Democracy; Optimal Taxes;

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  1. Benhabib, Jess & Velasco, Andres, 1996. "On the optimal and best sustainable taxes in an open economy," European Economic Review, Elsevier, vol. 40(1), pages 135-154, January.
  2. John F. Helliwell, 1992. "Empirical Linkages Between Democracy and Economic Growth," NBER Working Papers 4066, National Bureau of Economic Research, Inc.
  3. Li, Hongyi & Squire, Lyn & Zou, Heng-fu, 1998. "Explaining International and Intertemporal Variations in Income Inequality," Economic Journal, Royal Economic Society, vol. 108(446), pages 26-43, January.
  4. Easterly, W & Levine, R, 1996. "Africa's Growth Tragedy : Policies and Ethnic Divisions," Papers 536, Harvard - Institute for International Development.
  5. Chamley, Christophe, 1985. "Efficient Taxation in a Stylized Model of Intertemporal General Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 451-68, June.
  6. Giuseppe Bertola, 1991. "Factor Shares and Savings in Endogenous Growth," NBER Working Papers 3851, National Bureau of Economic Research, Inc.
  7. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
  8. Benhabib, Jess & Rustichini, Aldo, 1997. "Optimal Taxes without Commitment," Journal of Economic Theory, Elsevier, vol. 77(2), pages 231-259, December.
  9. Benhabib, Jess & Rustichini, Aldo, 1996. " Social Conflict and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 125-42, March.
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