, Volume 52, Issue 3, pp 273-297

Balanced-budget redistribution as the outcome of political competition

Rent the article at a discount

Rent now

* Final gross prices may vary according to local VAT.

Get Access

Abstract

This paper models balanced-budget redistribution between socio-economic groups as the outcome of electoral competition between two political parties. Equilibrium is unique in the present model, and a sufficient condition for existence is given, requiring that there be enough ‘stochastic heterogeneity’ with respect to party preferences in the electorate. The validity of Hotelling's ‘principle of minimum differentiation’, and of ‘Director's Law’, are examined under alternative hypotheses concerning administrative costs of redistributions, and voter's possibilities both of abstaining from voting and of becoming campaign activists for one of the parties. The policy strategy of expected-plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality. Incomes are fixed and known, so lump-sum taxation is feasible. However, constraints on tax/transfer differentiation between individuals are permitted in the analysis.

The authors are grateful for comments on an earlier version of the paper (Lindbeck and Weibull, 1985) from Nils Gottfries, Richard Jackman, Bo Larsson, Lars-Göran Mattson, Torsten Persson, Agnar Sandmo, Lars-Gunnar Svensson and from the participants in seminars at the Institute for International Economic Studies and at Lund University.