The Political Economy of Redistribution under Democracy

Adam Przeworski and Jess Benhabib ()

No 58, 2004 Meeting Papers from Society for Economic Dynamics

Abstract: We ask what redistributions of income and assets are feasible in a democracy, given the initial assets and their distribution. The question is motivated by the possibility that if redistribution is insufficient for the poor or excessive for the rich, they may turn against democracy. In turn, if no redistribution simultaneously satisfies the poor and the wealthy, democracy cannot be sustained. Hence, the corollary question concerns the conditions under which democracy is sustainable. Since decisions to save are endogenous, we solve explicitly for the current growth rates given any time path of future tax rates. We find that the optimal path of redistribution chosen by the median voter under the constraint of rebellion by the poor or the wealthy consists of redistributing as much as possible as soon as possible. However, this path is time inconsistent unless voters punish governments that deviate from their promises. Democracies survive in wealthy societies, with a lower average capital stock when they are more equal.

Keywords: Sustainable Democracy; Optimal Taxes (search for similar items in EconPapers)
JEL-codes: H0 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pol
Date: 2004
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Journal Article: The political economy of redistribution under democracy (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:red:sed004:58

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