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Paternalistic goods to improve income distribution: a political economy approach

Author

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  • Rosella Levaggi

    () (Economics Department, University of Brescia, Italy)

  • Francesco Menoncin

    () (Economics Department, University of Brescia, Italy)

Abstract

In this article we show that when the provision of paternalistic goods is entwined with income distribution, the political decision process may prevent welfare maximisation. We model the decision process from a political economy perspective by assuming that the quantity of a paternalistic good to be produced, its regional distribution, and the equalisation grant are the result of a utilitarian bargaining process between a (relatively) rich Region and a poor one. Two cases are considered: a unitary and a federal State. The solution for a unitary State shows that First Best can be achieved only if the two Regions have the same bargaining power. In this case the level of income distribution is negatively correlated with the power of the rich Region. For a federal State we show that the result of the bargaining process always implies underprovision of the paternalistic good. Our model may explain the observed cross-national differences in the redistributive power of public policies.

Suggested Citation

  • Rosella Levaggi & Francesco Menoncin, 2012. "Paternalistic goods to improve income distribution: a political economy approach," DEP - series of economic working papers 3/2012, University of Genoa, Research Doctorate in Public Economics.
  • Handle: RePEc:gea:wpaper:3/2012
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    More about this item

    Keywords

    Paternalistic Goods; Income Distribution;

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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