Consumer economic confidence and preference for redistribution: Main equilibrium results

This article develops a theoretic analysis of the delicate relationship between wealth, economic confidence and preferences for redistribution. In our model, citizens are concerned with the risk of unemployment, but are also concerned about current income. A first result shows that this relationship depends basically on two aspects of individual's preferences. If individuals care most strongly about job security, then the poorer they are and the less confident in the economy they are, the more government they favor. Conversely, if individuals care most strongly about income, then the poorer they are and the less economic confidence they have, the less government they want. This new result suggests that the one-way result in Meltzer and Richard (1981) may not always be true. Therefore, whether citizens favor more or less government as the median voter's economic confidence changes becomes an empirical issue. Furthermore, the article analyzes what happens when there is an aggregate shock that affects overall confidence in the economy. In that case, regardless of the tradeoff job security-income, society unambiguously favors bigger government if it suffers an aggregate shock that reduces overall economic confidence. Conversely, if society receives an aggregate shock that improve overall economic confidence, it unambiguously favors smaller governments.