Public Choice

, Volume 159, Issue 3–4, pp 561–576 | Cite as

Imperfect information and the Meltzer-Richard hypothesis

Article

Abstract

Standard majority-voting models predict that redistribution is positively linked to the mean-to-median income ratio but empirical evidence is mixed. This paper shows that the different empirical reactions to rising mean-to-median income ratios can be rationalized in a simple Romer-Roberts-Meltzer-Richard framework with imperfect information. In such a model, it is important to consider the source of rising mean-to-median ratios. Income growth of the poor can lead to less redistribution as more agents perceive themselves to be rich, which tends to reduce the support for redistribution. An empirical application reveals that the model can explain a substantial part of the first Reagan tax cut.

Keywords

Voting Redistribution Imperfect information 

JEL Classification

D72 H24 D83 

Supplementary material

11127_2013_72_MOESM1_ESM.pdf (103 kb)
(PDF 106 kB)

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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.Department of EconomicsTU Dortmund UniversityDortmundGermany

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