Income inequality, voting over the size of public consumption, and growth

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractAccording to a standard argument, higher income inequality fosters redistributive activities of the government in favor of the median income earner. This paper shows that if redistribution is achieved by a public provision of goods and services rather than by transfers, higher income inequality may imply a smaller size of the government in majority voting equilibrium. In addition to a static voting model, an endogenous growth model is analyzed to examine the role of saving decisions of heterogeneous individuals for both the distributional incidence of proportional factor income taxes and the voting outcome.JEL Classification: D33, H40, O41.

Measuring the strength of the theories of government size

“…15 Finally, the negative posterior mean of the Gini coefficient is in contrast to the majority voting hypothesis (Meltzer and Richard (1981)). The literature suggests that inequality may negatively affect redistribution, if we take into account capital market imperfections (e.g., Roemer (1998), Benabou (1996) and Benabou (2000)), in the presence of high intergenerational mobility (Benabou and Ok (2001)) or if redistribution is accomplished by a public provision of goods and services rather than by transfers (Grossmann (2003)). In particular, we find strong evidence for the effect of Gini on social protection expenditure.…”

Income Modeling and Balancing

“…(1) transfer and (2) spending on public goods and services (Grossmann 2003). The first mode has selected beneficiaries while the second mode, potentially, lets all individuals benefit.…”

A distributional theory of government growth

“…All other country 5 See e.g. Saint-Paul and Verdier (1996), Benabou (2000), Grossmann (2003), Dalgaard et al (2003). In particular the latter paper is related to the present work because it uses also cross-country productivity differences to explain the inequality-redistribution puzzle.…”