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Voting for immiserizing income redistribution in the Meltzer-Richard model

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  • Barnett, Richard

    ()
    (Department of Economics & International Business Lebow College of Business Drexel University)

  • Bhattacharya, Joydeep

    ()
    (Department of Economics Iowa State University)

  • Bunzel, Helle

    ()
    (Department of Economics Iowa State University)

Abstract

In the classic Meltzer and Richard (1981) model, the canonical model of income redistribution in democracies, voters, heterogeneous on the sole dimension of idiosyncratic productivity,evaluate an income redistributive program that pays everyone a lump-sum income subsidy financed by a distorting income tax levied on all. The political-equilibrium policy under majority rule is the tax rate most preferred (in a utility sense) by the median voter. The larger the gap between the median and mean income, the larger is the scale of income redistribution favored by the median voter. But does the median voter actually end up with more income post redistribution? We establish, somewhat ironically, that the median voter (and many poorer voters)in the Meltzer-Richard model may support income redistribution that leaves them poorer in income terms. Indeed, the basis for their support may not be more income but more leisure. The analysis spotlights the fact that transfer income, unlike labor income, requires no direct sacrifice of leisure.

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File URL: http://dl.dropboxusercontent.com/u/162210677/RePEc/drx/wpaper/LeBow%20College%20of%20Business%20Working%20Paper%202012-15.pdf
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Bibliographic Info

Paper provided by LeBow College of Business, Drexel University in its series School of Economics Working Paper Series with number 2012-15.

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Length: 27 pages
Date of creation: 01 Nov 2012
Date of revision:
Handle: RePEc:ris:drxlwp:2012_015

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Web page: http://www.lebow.drexel.edu/
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Related research

Keywords: Meltzer-Richard model; income redistribution; voting equilibrium;

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  1. Konrad, Kai A. & Morath, Florian, 2010. "Social mobility and redistributive taxation," CEPR Discussion Papers 7997, C.E.P.R. Discussion Papers.
  2. Marina Azzimonti & Eva de Francisco & Per Krusell, 2008. "Aggregation and Aggregation," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 381-394, 04-05.
  3. Lindqvist, Erik & Östling, Robert, 2006. "Identity and Redistribution," Working Paper Series in Economics and Finance 659, Stockholm School of Economics, revised 12 Jun 2007.
  4. Kai A. Konrad & Florian Morath, 2011. "Aspirations of the middle class: voting on redistribution and status concerns," Working Papers aspirations_of_the_middle, Max Planck Institute for Tax Law and Public Finance.
  5. Angeletos, George-Marios & Alesina, Alberto, 2005. "Fairness and Redistribution," Scholarly Articles 4553009, Harvard University Department of Economics.
  6. Traxler, Christian, 2012. "Majority voting and the welfare implications of tax avoidance," Journal of Public Economics, Elsevier, vol. 96(1), pages 1-9.
  7. Borge, Lars-Erik & Rattso, J.Jorn, 2004. "Income distribution and tax structure: Empirical test of the Meltzer-Richard hypothesis," European Economic Review, Elsevier, vol. 48(4), pages 805-826, August.
  8. Per Krusell & Jose-Victor Rios-Rull, 1997. "On the size of U.S. government: political economy in the neoclassical growth model," Staff Report 234, Federal Reserve Bank of Minneapolis.
  9. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
  10. Hodler, Roland, 2008. "Leisure and redistribution," European Journal of Political Economy, Elsevier, vol. 24(2), pages 354-363, June.
  11. Allan Meltzer & Scott Richard, 1983. "Tests of a rational theory of the size of government," Public Choice, Springer, vol. 41(3), pages 403-418, January.
  12. Marina Azzimonti & Eva de Francisco & Per Krusell, 2006. "Median-voter Equilibria in the Neoclassical Growth Model under Aggregation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 587-606, December.
  13. Torsten Persson & Guido Tabellini, 2002. "Political Economics: Explaining Economic Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661314, December.
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