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Inequality and size of the government when voters have other regarding preferences

By Sanjit Dhami and Ali al-Nowaihi


The celebrated relation between inequality and redistribution is based on selfish\ud voters who care solely about own-payouts. A growing empirical literature highlights\ud the importance of other regarding preferences (ORP) in voting over redistribution.\ud We reexamine the relation between inequality and redistribution, within a simple\ud general equilibrium model, when voters have ORP. Our contribution is five-fold.\ud First, we demonstrate the existence of a Condorcet winner. Second, poverty can\ud lead to increased redistribution (which implies a countercyclical social spending to\ud GDP ratio). Third, we show that disposable income 'strongly median-dominates'\ud factor income. Fourth, we show that fair voters respond to an increase in 'strong\ud median-dominance' by engaging in greater redistribution. Fifth, an illustrative em-\ud pirical exercise using OECD data points to the importance of fairness in explaining\ud redistribution

Topics: Redistribution, Other regarding preferences, Single crossing property, Income inequality, Difference dominance, Median dominance, American Exceptionalism
Publisher: Dept. of Economics, University of Leicester
Year: 2008
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