Redistribution, power sharing and inequality concern

Abstract

We analyze a political competition model of redistributive policies. We provide an equilibrium existence result and a full characterization of the net transfers to the different income groups. We also derive several testable predictions about the way in which the net group transfers and the after-tax Gini coefficient vary with the main parameters of the model. In accordance with the theory, the empirical evidence from a sample of developed and developing democracies supports a highly statistically significant association between: (i) the net group transfer and the gap between the population and the group mean initial income, and (ii) the net group transfer (and resp., the Gini coefficient) and power sharing disproportionality. In addition, the data also provide some empirical evidence confirming a significant relationship between the net transfers to the poor (and resp., the Gini) and the concern of the political parties with income inequality.