Inequality and size of the government when voters have other regarding preferences
Sanjit Dhami () and
Ali al-Nowaihi ()
No 08/23, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester
The celebrated relation between inequality and redistribution is based on selfish voters who care solely about own-payoffs. A growing empirical literature highlights the importance of other regarding preferences (ORP) in voting over redistribution. We reexamine the relation between inequality and redistribution, within a simple general equilibrium model, when voters have ORP. Our contribution is five-fold. First, we demonstrate the existence of a Condorcet winner. Second, poverty can lead to increased redistribution (which implies a countercyclical social spending to GDP ratio). Third, we show that disposable income 'strongly median-dominates' factor income. Fourth, we show that fair voters respond to an increase in 'strong median-dominance' by engaging in greater redistribution. Fifth, an illustrative empirical exercise using OECD data points to the importance of fairness in explaining redistribution.
Keywords: Redistribution; Other regarding preferences; Single crossing property; Income inequality; Difference dominance; Median dominance; American Exceptionalism. (search for similar items in EconPapers)
JEL-codes: D64 D72 D78 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm and nep-pol
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