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On inequality and the allocation of public spending

Author

Listed:
  • Radhika Lahiri

    () (Queensland University of Technology)

  • Elisabetta Magnani

    () (University of New South Wales)

Abstract

Empirical evidence on the link between inequality and redistribution mechanisms is inconclusive, and depends on the nature of the mechanism in question. We present a series of political economy models, and the associated results may be interpreted as being consistent with these facts. Specifically, we demonstrate that the link between inequality and redistribution depends on the nature of the mechanism relative to the alternatives that are available. Our analysis suggests that, in the presence of higher inequality, a median voter faced with the choice of the proportion of expenditure between two mechanisms is likely to choose in favour of public goods that are more efficient mechanisms of redistribution. In some cases, inequality does not matter and the proportion of spending on any particular public good is related only to the preference and technology related parameters of the model.

Suggested Citation

  • Radhika Lahiri & Elisabetta Magnani, 2008. "On inequality and the allocation of public spending," Economics Bulletin, AccessEcon, vol. 5(9), pages 1-8.
  • Handle: RePEc:ebl:ecbull:eb-08e60013
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    References listed on IDEAS

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    1. Di Gioacchino, Debora & Ginebri, Sergio & Sabani, Laura, 2005. "Inequality, redistribution and the allocation of public spending in education. A political-economy approach," Economics & Statistics Discussion Papers esdp05024, University of Molise, Dept. EGSeI.
    2. Huang, Hongming & Kao, Chihwa & Urga, Giovanni, 2008. "Copula-based tests for cross-sectional independence in panel models," Economics Letters, Elsevier, pages 224-228.
    3. Kjetil Storesletten, 2000. "Sustaining Fiscal Policy through Immigration," Journal of Political Economy, University of Chicago Press, pages 300-323.
    4. Douglas Holtz-Eakin & Mary E. Lovely & Mehmet Serkan Tosun, 2000. "Generational Conflict, Human Capital Accumulation, and Economic Growth," Center for Policy Research Working Papers 28, Center for Policy Research, Maxwell School, Syracuse University.
    5. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, pages 96-129.
    6. Josef ZweimüLler, 2000. "Inequality, Redistribution, and Economic Growth," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 27(1), pages 1-20, March.
    7. Jim Dolmas & Gregory W. Huffman, 2004. "On The Political Economy Of Immigration And Income Redistribution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1129-1168, November.
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    Cited by:

    1. Lahiri, Radhika & Ratnasiri, Shyama, 2013. "Costly technology adoption, redistribution and growth," Economic Modelling, Elsevier, vol. 33(C), pages 440-449.

    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H0 - Public Economics - - General

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