A Theory of Distributional Conflict, Voluntarism and Segregation

IgnatiusJ. Horstmann and KimberleyA. Scharf

Economic Journal, 2008, vol. 118, issue 527, pages 427-453

Abstract: Along with the rise in income inequality in the US, there is evidence of a simultaneous move towards fiscal devolution and increased government reliance on private provision of public goods. This article argues that these phenomena are related. We describe a model of jurisdiction and policy formation in which the structure of government provision is endogenous and public good provision levels are determined by a political process that can exploit private motives for voluntary giving. The model predicts that an increase in income inequality leads to decentralisation, with local jurisdictions becoming more income-homogeneous than the population as a whole. This reduction in local income heterogeneity, combined with a reduced tax base, results in increased reliance by government on private provision. Copyright © 2008 The Author(s).

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