Deceptive Redistribution

Many policies enhance welfare under certain conditions, but have the potential to generate private rents at other times. This can prompt rent-seeking governments to adopt such policies excessively. If the economy's constituents can easily detect opportunistic policymaking, rent-seeking is constrained by the prospect of loosing political reputation and the removal from power. If, in contrast, information is scarce and the politician's motives are accordingly murky, his discretion depends critically on the ability of different constituents to report instances of abuse. Governments, however, can mitigate scrutiny by way of excessive transfers that benefit prospective political clients. The patterns of inefficiency and redistribution that our model generates match salient stylized facts. In contrast to the standard view that inefficiencies are unavoidable when implementing redistributive policies, we argue that redistribution may be a means to disguise inefficient policies that generate private benefits to politicians.