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Deceptive Redistribution

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  • Guillermo L. Ordoñez

    (Yale University)

  • Simeon D. Alder

    (University of Notre Dame)

Abstract

While 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 Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1140.

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Date of creation: 2011
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Handle: RePEc:red:sed011:1140

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  1. 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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