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Diversity and redistribution

Fernández, Raquel and Levy, Gilat (2005) Diversity and redistribution. 11570. National Bureau of Economic Research, Cambridge, MA., USA. (Unpublished)

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Abstract

This paper examines how preference heterogeneity affects the ability of the poor to extract resources from the rich. We study the equilibrium of a game in which coalitions of individuals form parties, parties propose platforms, and all individuals vote, with the winning policy chosen by plurality. Political parties are restricted to offering platforms that are credible (in that they belong to the Pareto set of their members). The platforms specify the values of two policy tools: a general redistributive tax which is lump-sum rebated and a series of taxes whose revenue is used to fund specific (targeted) goods. We show that taste conflict first dilutes but later reinforces class interests. When the degree of taste diversity is low, the equilibrium policy is characterized by some amount of general income redistribution and some targeted transfers. As taste diversity increases in society, the set of equilibrium policies becomes more and more tilted towards special interest groups and against general redistribution. As diversity increases further, however, only general redistribution survives.

Item Type: Monograph (Working Paper)
Official URL: http://www.nber.org/
Additional Information: © 2005 Raquel Fernández and Gilat Levy.
Library of Congress subject classification: J Political Science > JC Political theory
H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior
D - Microeconomics > D3 - Distribution > D30 - General
Sets: Collections > Economists Online
Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 11570
Date Deposited: 16 Dec 2005
URL: http://eprints.lse.ac.uk/544/

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