Political Geography and Income Inequalities

This paper studies the effect of the introduction of income inequalities in a model of geopolitical organization. We assume the existence of two groups of agents with different incomes. We focus on the policy effects of changes in income differential between the groups and changes in the fraction of the population belonging to the two groups. In the optimal solution, if size is endogenous and public good provision exogenous size increases as income inequality increases; if both size and public good provision are endogenously determined size is neutral to changes in income inequalities and public good provision decreases as inequality increases. There are cases where a stable solution does not exist and the possibility of non existence increases together with inequality, if both size and public good provision are endogenously determined.