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Political competition and the (in)effectiveness of redistribution in a federation

Ikuho Kochi & Raúl Ponce Rodríguez ()
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Ikuho Kochi & Raúl Ponce Rodríguez: Universidad Autónoma de Ciudad Juárez, https://sites.google.com/site/raulponcerodriguez/

Authors registered in the RePEc Author Service: Ikuho Kochi () and Raul Alberto Ponce Rodriguez ()

No 10, Estudios Regionales en Economía, Población y Desarrollo. Cuadernos de Trabajo de la Universidad Autónoma de Ciudad Juárez. from Cuerpo Académico 41 de la Universidad Autónoma de Ciudad Juárez

Abstract: We analyze political and economic conditions in which the effectiveness of public redistribution might be low in a federation. In our economy, the central government redistributes income while local governments provide a pro poor local public good. If local public spending falls as a response to the ex-post tax-transfer distribution of income engineered by the policy of the central government then public redistribution might be ineffective in redistributing welfare. In this paper we address this issue. Our main findings are: first, if the party of some local government represents a coalition of voters with labor earning abilities below the average earning ability of the economy and the aggregate net transfer from the redistributive program is negative for residents in the locality then local public spending falls in this district as a response to the redistributive policy of the central government. Second, if local governments of all districts are controlled by parties representing voters with sufficiently high marginal utilities of income and labor earning abilities below the nationwide average labor earning ability then public redistribution induces all local governments to reduce local public spending.

Keywords: Redistributive effects; state and local governments; fiscal policy and behavior of agents; elections (search for similar items in EconPapers)
JEL-codes: H23 H76 H3 D72 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm, nep-geo, nep-pbe and nep-pol
Date: 2012-07-01, Revised 2012-12-09
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