Why poor countries rely mostly on redistribution in-kind (original) (raw)

On inequality and the allocation of public spending

Empirical evidence on the link between inequality and redistribution mechanisms is inconclusive, and depends on the nature of the mechanism in question. We present a series of political economy models, and the associated results may be interpreted as being consistent with these facts. Specifically, we demonstrate that the link between inequality and redistribution depends on the nature of the mechanism relative to the alternatives that are available. Our analysis suggests that, in the presence of higher inequality, a median voter faced with the choice of the proportion of expenditure between two mechanisms is likely to choose in favour of public goods that are more efficient mechanisms of redistribution. In some cases, inequality does not matter and the proportion of spending on any particular public good is related only to the preference and technology related parameters of the model.

Political Participation, Income Distribution, and Public Transfers in Developed Democracies

1998

these arguments and related extensions also appear in [references omitted for anonymity]. I gratefully acknowledge helpful comments, criticisms, and suggestions from Abstract: In the postwar era until recently, public-transfer shares of GDP have risen dramatically in every developed democracy. Much positive theory purports to explain this development as a direct consequence of differing distributions of political (votes) and economic (money) resources. This literature concludes, inter alia, that tax-and-transfer-system (T&T) sizes increase in the skew of the income distribution. This paper builds from that basis, suggesting theoretical additions and amendments deriving from further consideration of the democratic processes that transform resources into influence. It especially emphasizes that not everyone participates politically and that who participates is non-randomly selected. This implies that aggregate participation rates will mediate T&T responses to income inequality, and, conversely, that income inequality will mediate T&T responses to aggregate participation rates. Specifically, since the relatively wealthy have higher propensity to participate politically, higher aggregate participation rates will generally coincide with increased democratic representation of the relatively less well-off, suggesting that democratic governments will respond to greater inequality with larger T&T increases the higher the participation rate and, vice versa, higher participation induces larger T&T responses the more skewed the underlying income distribution. Regression analysis of the postwar T&T experiences of developed democracies support that hypothesis empirically. GR IR NE NO PO SP SW SZ AL NZ No Data Available Shaded bars separate countries; each bar runs from 1950-1995.

Inequality and Redistribution via the Public Provision of Private Goods

The relationship between inequality and redistribution is usually studied under the assumption that the government collects different amounts of taxes from each citizen (voter) but gives back the same amount (in cash or in kind) to everyone. In this paper we consider what happens if the government can redistribute through both sides of its budget (revenue and expenditure). We show that inequality may have no discernible effect on the size of redistributive programs.

Income redistribution: An international perspective

Public Choice, 1996

Many view global income inequality as a problem. Income redistribution from the rich countries to poor countries is often offered as a solution. However, such redistribution would have to be politically acceptable to voters in rich countries to occur. Using a constructed distribution of world income we show that even modest income redistribution efforts would impose significant costs on taxpayer-voters in rich countries. We conclude such income redisfribution is unlikely.

Political Institutions and Redistribution

2000

The paper develops a model of a parliament and analyses the political-equilibrium tax and spending decisions. The underlying economy is an overlapping-generations economy, where individuals differ in preferences over a public good (as well as in age). Labour taxation and capital taxation is used to finance public goods provision, period by period. Potentially any individual may form a party, and individuals vote on those parties that have decided to run for election. The number of seats obtained by a party in parliament is proportional to the number of votes it gets. Given the election result parties form coalitions to bargain over policy proposals. The implemented proposal is the one getting more than half of the votes in parliament. If preferences over public goods are enough disperse, there is a unique equilibrium where no single party has majority and where policy is a compromise (as opposed to an ideal point). If population growth is positive, the largest party in parliament consists of old with strong preferences for the public good. The political-equilibrium coalition is between the largest party and a party consisting of young with weak preferences for the public good. Distribution, though, goes from old to young. If there is negative population growth the largest party consists of young with strong preferences for the public goods. The coalition is between the largest party and a party consisting of old with weak preferences for the public good. Distribution, in this case, goes from young to old. If there is little dispersion in preferences (i.e. when there is roughly only one-dimensional heterogeneity), then the political-equilibrium policy coincides with the policy predicted by median-voter model.

Poverty, taxation and governance

The Journal of International Trade & Economic Development, 2006

We are indebted to the conference participants and an anonymous referee for very helpful comments. Sugata Marjit's research is partly supported by the RBI endowment at the CSSS, Calcutta. The usual disclaimer applies.

On Altruistic and Electoral Income Redistribution: Theory and Data

2017

We analyze a political competition model of redistributive policies. We show that the net transfers to the income groups consist of two parts, called altruistic and electoral redistribution. In accordance with the theory, the empirical evidence from a sample of developed and developing democracies strongly supports a positive and significant association between: (i) the net group transfers and the initial income gaps, and (ii) the net transfers to the non-poor (and respectively, the after-tax Gini coefficient) and power sharing disproportionality. JEL Classification Codes: C72, D72, D78.

Redistributive Policies through Taxation: theory and evidence

2003

Increasing marginal tax rates and making payments to the poor reduce inequality and introduce savings disincentives. Using a heterogeneous agent model with incomplete markets, we show that higher taxes (and transfers) decrease consumption inequality but also mean savings and mean consumption. This demonstrates the trade-off between equity and efficiency. These theoretical predictions are tested by exploiting differences in tax rates across US states. Using two surveys, the Consumer Expenditure Survey and the Current Population Survey, we show that the empirical evidence supports the theory, and that there is a comparatively small fall in efficiency for a given gain in equity associated with higher taxation

Economic Limits on" Rational" Democratic Redistribution

2002

I begin with an economic environment familiar from welfare-and political-economic literatures and show how, with quantitatively reasonable distributions of labor productivity and tax-price-elasticities of taxable income, middle class consumers are (personally) worse off with any negative income tax scheme than they would be with no redistribution at all. This finding has important implications for political-economic theories of redistribution, because it implies that the fully informed median voter cannot be expected to support programs of cash redistribution from rich to poor -such as the negative income tax -merely on the basis of his personal benefits from the program. It also implies that the "rational" median voter model of redistribution is, in the empirically relevant range, consistent with a zero correlation between income distribution skewness, or enfranchisement of the poor, and the amount of rich-poor redistribution. The paper also presents some comparable cross-country measures of one of the determinants of the tax-price-elasticity of taxable income, tax base breadth.