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Inequality, poverty and the composition of redistribution

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  • Julián Costas-Fernández

    (University College London)

  • Simón Lodato

    (Middlesex University)

Abstract

We study the use of social expenditures and regulation for redistribution. When regulated goods are essential in the consumption bundle of the poor, a high poverty rate creates incentives to increase redistribution through regulation. By contrast, inequality directs redistribution towards social expenditures. We propose a theoretical model that captures the trade-off between these two redistributive policies and test the model implications with a novel municipality dataset on income and local government policies. Theory predicts and empirical evidence supports that failing to account for poverty biases the effect of inequality on redistribution. Our evidence also reflects the positive connection between poverty and the use of regulation for redistribution.

Suggested Citation

  • Julián Costas-Fernández & Simón Lodato, 2022. "Inequality, poverty and the composition of redistribution," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 59(4), pages 925-967, November.
  • Handle: RePEc:spr:sochwe:v:59:y:2022:i:4:d:10.1007_s00355-022-01415-5
    DOI: 10.1007/s00355-022-01415-5
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