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Political Economy of Director's Law: How Sincere Voters Decide on Cash and In-kind Redistribution in a Costly Political Framework

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  • Francesco Scervini

    () (University of Torino)

Abstract

The amount of taxes and public expenditures seems to be uncorrelated to the level of market inequality in OECD countries. This empirical evidence is diffcult to be rationalized in a standard median voter theorem setting, where individuals rationally choose their preferred redistribution scheme. This paper reconciles theory and evidence by introducing a source of political asymmetry, that is income inequality: assuming that political activity is costly, income distribution can be a determinant of political asymmetry, provided that some classes of individuals are not able to satisfy their political budget constraint. The political framework consists of a bi-dimensional policy space where preferences over cash redistribution are monotonically decreasing with income, while those over in-kind redistribution depend on the middle class position, according to Director's law. The result is that the elected policy maker is increasingly biased toward rich classes of population as far as market income inequality increases.

Suggested Citation

  • Francesco Scervini, 2009. "Political Economy of Director's Law: How Sincere Voters Decide on Cash and In-kind Redistribution in a Costly Political Framework," Working papers 08, Former Department of Economics and Public Finance "G. Prato", University of Torino.
  • Handle: RePEc:tur:wpaper:08
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    File URL: http://www.bemservizi.unito.it/repec/tur/wpaper/n8.pdf
    File Function: First version, 2009
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    References listed on IDEAS

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    1. Francesco Scervini, 2012. "Empirics of the median voter: democracy, redistribution and the role of the middle class," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 10(4), pages 529-550, December.
    2. Massimo Baldini & Daniele Pacifico, 2006. "Gli effetti distributivi dei trasferimenti in kind: il caso dei servizi educativi e sanitari," Center for the Analysis of Public Policies (CAPP) 0018, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    3. Milanovic, Branko, 2000. "The median-voter hypothesis, income inequality, and income redistribution: an empirical test with the required data," European Journal of Political Economy, Elsevier, vol. 16(3), pages 367-410, September.
    4. Rolf Aaberge & Audun Langørgen, 2006. "Measuring The Benefits From Public Services: The Effects Of Local Government Spending On The Distribution Of Income In Norway," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 52(1), pages 61-83, March.
    5. Perotti, Roberto, 1996. "Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-187, June.
    6. Daniela Sonedda & Gilberto Turati, 2005. "Winners and Losers in the Italian Welfare State: A Microsimulation Analysis of Income Redistribution Considering In-Kind Transfers," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 64(4), pages 423-464, December.
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    Cited by:

    1. Francesco Scervini, 2012. "Empirics of the median voter: democracy, redistribution and the role of the middle class," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 10(4), pages 529-550, December.

    More about this item

    Keywords

    Income distribution; Redistribution; Political process; Publicly provided goods;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods

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