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Balanced-budget redistribution as the outcome of political competition

  • Assar Lindbeck
  • Jörgen Weibull

This paper models balanced-budget redistribution between socio-economic groups as the outcome of electoral competition between two political parties. Equilibrium is unique in the present model, and a sufficient condition for existence is given, requiring that there be enough ‘stochastic heterogeneity’ with respect to party preferences in the electorate. The validity of Hotelling's ‘principle of minimum differentiation’, and of ‘Director's Law’, are examined under alternative hypotheses concerning administrative costs of redistributions, and voter's possibilities both of abstaining from voting and of becoming campaign activists for one of the parties. The policy strategy of expected-plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality. Incomes are fixed and known, so lump-sum taxation is feasible. However, constraints on tax/transfer differentiation between individuals are permitted in the analysis. Copyright Martinus Nijhoff Publishers 1987

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File URL: http://hdl.handle.net/10.1007/BF00116710
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Article provided by Springer in its journal Public Choice.

Volume (Year): 52 (1987)
Issue (Month): 3 (January)
Pages: 273-297

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Handle: RePEc:kap:pubcho:v:52:y:1987:i:3:p:273-297
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  1. d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "On Hotelling's "Stability in competition"," CORE Discussion Papers RP -385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Kramer, Gerald H., 1977. "A dynamical model of political equilibrium," Journal of Economic Theory, Elsevier, vol. 16(2), pages 310-334, December.
  3. Coughlin, Peter & Nitzan, Shmuel, 1981. "Electoral outcomes with probabilistic voting and Nash social welfare maxima," Journal of Public Economics, Elsevier, vol. 15(1), pages 113-121, February.
  4. Small, Kenneth A & Rosen, Harvey S, 1981. "Applied Welfare Economics with Discrete Choice Models," Econometrica, Econometric Society, vol. 49(1), pages 105-30, January.
  5. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135.
  6. Peter Coughlin, 1982. "Pareto optimality of policy proposals with probabilistic voting," Public Choice, Springer, vol. 39(3), pages 427-433, January.
  7. Stigler, George J, 1970. "Director's Law of Public Income Redistribution," Journal of Law and Economics, University of Chicago Press, vol. 13(1), pages 1-10, April.
  8. Lindbeck, Assar, 1985. "Redistribution policy and the expansion of the public sector," Journal of Public Economics, Elsevier, vol. 28(3), pages 309-328, December.
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