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The Political Economy of Redistribution Under Asymmetric Information

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  • Sanjit Dhami

    (University of Newcastle Upon Tyne)

Abstract

This paper examines the political economy of redistribution when voters have asymmetric information about the redistributive preferences of politicians and the latter cannot make credible policy commitments. The candidates in each party are endogenously selected by a process of Nash Bargaining between the competing factions. In equilibrium, there is "partial convergence" of redistributive policies, support for "Director's Law", the possibility of "policy reversals" across the parties, and "inter term tax variability" (political budget cycles) during the tenure of a politician. The effect of inequality on the magnitude of the redistributive activity depends in important ways on the incentives and constraints facing politicians.

Suggested Citation

  • Sanjit Dhami, 2001. "The Political Economy of Redistribution Under Asymmetric Information," Game Theory and Information 0108001, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpga:0108001
    Note: Type of Document - Postscript; prepared on PC; to print on PostScript; pages: 29 ; figures: included. We never published this piece and now we would like to reduce our mailing and xerox cost by posting it.
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    References listed on IDEAS

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    1. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482 Elsevier.
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    Cited by:

    1. Toke S. Aidt & Julia Shvets, 2012. "Distributive Politics and Electoral Incentives: Evidence from Seven US State Legislatures," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 1-29, August.
    2. Jon X. Eguia & Antonio Nicolò, 2011. "On the Efficiency of Partial Information in Elections," Carlo Alberto Notebooks 234, Collegio Carlo Alberto.
    3. Leigh, Andrew, 2008. "Estimating the impact of gubernatorial partisanship on policy settings and economic outcomes: A regression discontinuity approach," European Journal of Political Economy, Elsevier, vol. 24(1), pages 256-268, March.
    4. Konishi, Hideki, 2006. "Spending cuts or tax increases? The composition of fiscal adjustments as a signal," European Economic Review, Elsevier, vol. 50(6), pages 1441-1469, August.

    More about this item

    Keywords

    Signaling; Inequality; Redistribution; Political Business Cycles;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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