AbstractWhile economic and redistributive policies can be welfare enhancing in an environment characterized by market failures and inequality, they frequently generate private gains to those who hold public office. In a setting with dispersed information about the policies' true motives we ask how self-interested governments who fret over their perceived integrity (reputation) balance legitimate needs for government action with the temptations of rent-seeking. Compared to the previous literature our model generates a richer trade-off structure between redistribution and efficiency. We find that governments use transfers strategically to conceal inefficient policy choices and excessive office rents. Our model also offers novel economic insights into the role of information frictions in shaping the governments' political accountability.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1140.
Date of creation: 2011
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
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Other versions of this item:
- O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
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- Persson, Torsten & Tabellini, Guido, 1994.
"Is Inequality Harmful for Growth?,"
American Economic Review,
American Economic Association, vol. 84(3), pages 600-621, June.
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