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Income Inequality and the Size of the Public Sector

  • Michele Giuseppe Giuranno

    ()

This paper focuses on the question of how income inequality between two jurisdictions impacts upon government decision-making affecting the size of the public sector. We model policy choices as the outcome of regional representatives' negotiations in the legislature. We show that the more unequal income distribution is, the greater the degree of inefficiency in terms of under-provision of public goods. Particularly, a divergent income trend between rich and poor makes interregional redistributive conflicts more dramatic. Consequently, the larger the income disparity, the smaller the public sector. A wealthier economy as a result may lead to a relatively smaller public sector when income disparity increases.

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File URL: http://www.essex.ac.uk/economics/discussion-papers/papers-text/dp603.pdf
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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 603.

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Date of creation: 07 Nov 2005
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Handle: RePEc:esx:essedp:603
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Order Information: Postal: Discussion Papers Administrator, Department of Economics, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, U.K.
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  1. Persson, Mats, 1995. " Why Are Taxes So High in Egalitarian Societies?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 569-80, December.
  2. Lockwood, Ben, 2002. "Distributive Politics and the Costs of Centralization," Review of Economic Studies, Wiley Blackwell, vol. 69(2), pages 313-37, April.
  3. Bassett, William F. & Burkett, John P. & Putterman, Louis, 1999. "Income distribution, government transfers, and the problem of unequal influence," European Journal of Political Economy, Elsevier, vol. 15(2), pages 207-228, June.
  4. Kjetil Bjorvatn & Alexander W. Cappelen, 2003. "Redistributive Tax Policies and Inequality: An Assessment of Recent Country Comparative Studies," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 1(1), pages 28-31, 02.
  5. Horstmann, Ignatius J & Scharf, Kimberley, 1999. "The New Federalism: Distributional Conflict, Voluntarism and Segregation," CEPR Discussion Papers 2273, C.E.P.R. Discussion Papers.
  6. Jaramillo, F. & Kempf, H. & Moizeau, F., 2000. "Inequality and Club Formation," Papiers d'Economie Mathématique et Applications 2000.36, Université Panthéon-Sorbonne (Paris 1).
  7. repec:cup:cbooks:9780521576475 is not listed on IDEAS
  8. Vander Lucas, 2002. "Fiscal federalism and bargaining over transfers," Economics Bulletin, AccessEcon, vol. 28(13), pages A0.
  9. Bjorvatn, K. & Cappelen, A.W., 2000. "Inequality, Segregation, and Redistribution," Papers 13/00, Norwegian School of Economics and Business Administration-.
  10. Tridimas, George & Winer, Stanley L., 2005. "The political economy of government size," European Journal of Political Economy, Elsevier, vol. 21(3), pages 643-666, September.
  11. repec:ebl:ecbull:v:28:y:2002:i:13:p:a0 is not listed on IDEAS
  12. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
  13. Kristov, L. & Lindert, P. & Mcclelland, R., 1990. "Pressure Groups And Redistribution," Papers 66, California Davis - Institute of Governmental Affairs.
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