Income Inequality, Redistribution and Poverty. Contrasting Rational Choice and Behavioural Perspectives

Malte Luebker

No 577, LIS Working papers from LIS Cross-National Data Center in Luxembourg

Abstract: Based on the standard axiom of individual utility maximization, rational choice has postulated that higher income inequality translates into greater redistribution by shaping the median voter’s preferences. While numerous papers have tested this proposition, the literature has remained divided over the appropriate measure for redistribution. Revisiting the original contribution by Meltzer and Richard, the present paper argues that the median voter hypothesis implies that relative redistribution should increase in line with inequality. An empirical test based on 110 observations from the Luxembourg Income Study fails to find any support for the hypothesis. By contrast, voters’ actual preferences offer a better guide to understanding redistributive outcomes. The findings challenge the narrow concept of human motivation that underpins rational choice, and point to the importance of fairness orientations that have been emphasized in behavioural economics.

Keywords: income distribution; redistribution; median voter theorem; behavioural economics (search for similar items in EconPapers)
JEL-codes: D03 D31 H23 H55 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2012-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in The Review of Income and Wealth 60, no. 1 (2014): 133–154

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Journal Article: Income Inequality, Redistribution, and Poverty: Contrasting Rational Choice and Behavioral Perspectives (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:lis:liswps:577

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