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Inequality and size of the government when voters have other regarding preferences

  • Sanjit Dhami

    ()

  • Ali al-Nowaihi

    ()

The celebrated relation between inequality and redistribution is based on selfish voters who care solely about own-payoffs. A growing empirical literature highlights the importance of other regarding preferences (ORP) in voting over redistribution. We reexamine the relation between inequality and redistribution, within a simple general equilibrium model, when voters have ORP. Our contribution is five-fold. First, we demonstrate the existence of a Condorcet winner. Second, poverty can lead to increased redistribution (which implies a countercyclical social spending to GDP ratio). Third, we show that disposable income 'strongly median-dominates' factor income. Fourth, we show that fair voters respond to an increase in 'strong median-dominance' by engaging in greater redistribution. Fifth, an illustrative empirical exercise using OECD data points to the importance of fairness in explaining redistribution.

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File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp08-23.pdf
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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 08/23.

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Date of creation: Jul 2008
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Handle: RePEc:lec:leecon:08/23
Contact details of provider: Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
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Web page: http://www2.le.ac.uk/departments/economics
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  1. Jean-Robert Tyran & Rupert Sausgruber, 2002. "A Little Fairness may Induce a Lot of Redistribution in Democracy," University of St. Gallen Department of Economics working paper series 2002 2002-30, Department of Economics, University of St. Gallen.
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