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The Political Economy of Redistribution Under Asymmetric Information

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  • Sanjit Dhami

    (University of Newcastle Upon Tyne)

Abstract

This paper examines the political economy of redistribution when voters have asymmetric information about the redistributive preferences of politicians and the latter cannot make credible policy commitments. The candidates in each party are endogenously selected by a process of Nash Bargaining between the competing factions. In equilibrium, there is "partial convergence" of redistributive policies, support for "Director's Law", the possibility of "policy reversals" across the parties, and "inter term tax variability" (political budget cycles) during the tenure of a politician. The effect of inequality on the magnitude of the redistributive activity depends in important ways on the incentives and constraints facing politicians.

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Bibliographic Info

Paper provided by EconWPA in its series Game Theory and Information with number 0108001.

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Length: 29 pages
Date of creation: 16 Aug 2001
Date of revision:
Handle: RePEc:wpa:wuwpga:0108001

Note: Type of Document - Postscript; prepared on PC; to print on PostScript; pages: 29 ; figures: included. We never published this piece and now we would like to reduce our mailing and xerox cost by posting it.
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Keywords: Signaling; Inequality; Redistribution; Political Business Cycles;

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  1. Di Tella, Rafael & Alesina, Alberto & MacCulloch, Robert, 2004. "Inequality and Happiness: Are Europeans and Americans Different?," Scholarly Articles 4553007, Harvard University Department of Economics.
  2. Assar Lindbeck & Jörgen Weibull, 1987. "Balanced-budget redistribution as the outcome of political competition," Public Choice, Springer, vol. 52(3), pages 273-297, January.
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  6. Roemer, John E., 1998. "Why the poor do not expropriate the rich: an old argument in new garb," Journal of Public Economics, Elsevier, vol. 70(3), pages 399-424, December.
  7. 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.
  8. Timothy Besley & Anne Case, 1993. "Does Electoral Accountability Affect Economic Policy Choices? Evidence from Gubernatorial Term Limits," NBER Working Papers 4575, National Bureau of Economic Research, Inc.
  9. Dixit, Avinash K & Londregan, John, 1994. "Redistributive Politics and Economic Efficiency," CEPR Discussion Papers 1056, C.E.P.R. Discussion Papers.
  10. Alesina, Alberto & Tabellini, Guido, 1988. "Credibility and politics," European Economic Review, Elsevier, vol. 32(2-3), pages 542-550, March.
  11. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  12. Kenneth Rogoff, 1987. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc.
  13. Alex Cukierman & Yossi Spiegel, 2003. "When is the median voter paradigm a reasonable guide for policy choices in a representative democracy?," Economics and Politics, Wiley Blackwell, vol. 15(3), pages 247-284, November.
  14. Avinash Dixit & John Londregan, 1998. "Ideology, Tactics, And Efficiency In Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 497-529, May.
  15. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475.
  16. Lindbeck, Assar & Weibull, Jorgen W., 1993. "A model of political equilibrium in a representative democracy," Journal of Public Economics, Elsevier, vol. 51(2), pages 195-209, June.
  17. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December.
  18. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  19. Romer, Thomas, 1975. "Individual welfare, majority voting, and the properties of a linear income tax," Journal of Public Economics, Elsevier, vol. 4(2), pages 163-185, February.
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Cited by:
  1. Toke Aidt & Julia Shvets, 2011. "Distributive Politics and Electoral Incentives: Evidence from Seven US State Legislatures," CESifo Working Paper Series 3405, CESifo Group Munich.
  2. Jon X. Eguia & Antonio Nicolò, 2011. "On the Efficiency of Partial Information in Elections," Carlo Alberto Notebooks 234, Collegio Carlo Alberto.
  3. Andrew Leigh, 2007. "Estimating the Impact of Gubernatorial Partisanship on Policy Settings and Economic Outcomes: A Regression Discontinuity Approach," CEPR Discussion Papers 556, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  4. Konishi, Hideki, 2006. "Spending cuts or tax increases? The composition of fiscal adjustments as a signal," European Economic Review, Elsevier, vol. 50(6), pages 1441-1469, August.

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