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Redistribution and affirmative action
Abstract
The paper develops an integrated political economy model in which individuals are distinguished by earning ability and an ascriptive characteristic, race. The policy space is a transfer payment to low-income workers financed by a flat tax on wages and an affirmative action constraint on firms' hiring decisions. The distribution of income and the policy are endogenous, with the latter being the outcome of a legislative bargaining game between three legislative blocs. The model provides support for the common claim that racial divisions reduce support for welfare expenditures, even when voters have color-blind preferences. We show that relatively advantaged members of both the majority and minority group benefit from the introduction of a second dimension of redistribution, while the less advantaged members of the majority are the principal losers.
... Society has evolved many mechanisms to offset inequality in real-life where often unequal individuals/teams/organizations have to compete against each other, namely, through affirmative action [1], [2], special incentives [3], [4], [5], tax breaks [6], [7], [8], compensation [9], [10], subsidies [11], [12] etc. While there are plenty of evidences that these measures help the weaker team, controversy persists around the implementation detail. ...
... Contributions: To summarize, the main contributions of this paper are: (1) We initiate the study of agent and team performance in the setting of unequal and changing skill levels, through a novel game -Touch-Mark. (2) We study mechanisms of offsetting unequal competition through individual and team rewards, which can also be learned using RL. (3) We propose C-MADDPG, which learns a dynamic role-based policy ensemble, for faster learning of agent policies and overall smaller simulation time. ...
... (4). (2). [Team-Dynamic-Agent-RL]similarly, we decide the value of α A using π(s) and compute α T using eq. ...
This paper investigates the dynamics of competition among organizations with unequal expertise. Multi-agent reinforcement learning has been used to simulate and understand the impact of various incentive schemes designed to offset such inequality. We design Touch-Mark, a game based on well-known multi-agent-particle-environment, where two teams (weak, strong) with unequal but changing skill levels compete against each other. For training such a game, we propose a novel controller assisted multi-agent reinforcement learning algorithm \our\, which empowers each agent with an ensemble of policies along with a supervised controller that by selectively partitioning the sample space, triggers intelligent role division among the teammates. Using C-MADDPG as an underlying framework, we propose an incentive scheme for the weak team such that the final rewards of both teams become the same. We find that in spite of the incentive, the final reward of the weak team falls short of the strong team. On inspecting, we realize that an overall incentive scheme for the weak team does not incentivize the weaker agents within that team to learn and improve. To offset this, we now specially incentivize the weaker player to learn and as a result, observe that the weak team beyond an initial phase performs at par with the stronger team. The final goal of the paper has been to formulate a dynamic incentive scheme that continuously balances the reward of the two teams. This is achieved by devising an incentive scheme enriched with an RL agent which takes minimum information from the environment.
... Una de les poques excepcions que aborda els efectes de la diversitat en els resultats redistributius amb un enfocament institucional és l'estudi d'Austin-26 La redistribució en Les democràcies parLamentàries Smith i Wallerstein (2006) sobre les polítiques de discriminació positiva als Estats Units. Hi ha una manca clara de teorització respecte dels efectes de les institucions i el comportament dels actors polítics quan la competició política és multidimensional. ...
... En aquest llibre s'ha mostrat que la rellevància electoral d'una segona dimensió de competició política pot tenir conseqüències negatives significatives per a la redistribució en les democràcies parlamentàries multipartidistes. Aquest argument ja existia i era predominant en la literatura (Roemer, 1998;Austin Smith i Wallerstein, 2006), però s'havia aplicat als països amb sistemes electorals majoritaris. En aquesta obra, per contra, s'ha mostrat que l'efecte positiu de sistemes electorals de representació proporcional desapareix quan la clivella identitària-territorial conforma una dimensió rellevant de competició política. ...
... The theoretical literature provides two broad ways through which strong group identities reduce preferences for redistribution: First, group identity can bring a second dimension to politics, and people who correctly identify their economic interests can be distracted by this second dimension, e.g., religion, race, national identity (Austen-Smith and Wallerstein, 2006;De la O and Rodden, 2008;Shayo, 2009). Second, group identity can shape preferences for redistribution across income groups. ...
... Other works include Barth (1969), Brass (1974), Kasfir (1979), Laitin (1988), Chandra and Boulet (2003), Wilkinson (2004), Chandra (2004Chandra ( , 2005, and Posner (2005). of income. Similarly, De la O and Rodden (2008) suggest that religious identification reduces preferences for redistribution, and Austen-Smith and Wallerstein (2006) show that racial politics, when affirmative action is an alternative way of redistribution, reduces preferences for redistribution in the way religious politics does. Luttmer (2001) argues that people support redistribution less if people who benefit from redistribution are from different races. ...
We analyze the process of democratization in a polity with groups that are divided along ethnic as well as economic lines. We show that: (i) the presence of ethnic minorities, in general, makes peaceful democratic transitions less likely; (ii) minorities suffer from discriminatory policies less in democracies with intermediate levels of income inequality; and (iii) in new democracies with low levels of income inequality, politics is divided along ethnic lines, and at greater levels of inequality economic cleavages predominate.
... Third, there is a separate line of research on the choice of economic policy in democracies which has studied policy implications of ethnic diversity through various democratic channels. In this body of work, ethnic diversity and its impact on policy-making have been analyzed by focusing on affirmative action policies, provision of specific public goods, or targeted redistribution via coalition formation between different ethnic and income groups (Roemer 1998, Austen-Smith and Wallerstein, 2006, Huber and Stanig, 2007 and Bandiera and Levy, 2008 ). 9 In contrast to the literature on political-economic determinants of democratic stability, in this latter set of studies, the relevant actors do not have the option of abolishing the democratic framework in the face of policy choices not preferred by some segment of society. ...
... The exact same logic 18 see e.g. Roemer (1998), Alesina, Baqir and Easterly (1999), Austen-Smith and Wallerstein (2006) also applies to the tax rate that R and P offer (τ P R ) jointly. In that case, P could deviate to a slightly higher tax rate and still win the elections by the votes of its supporters. ...
How do policies that imply official recognition of ethnic identities affect democratic stability in the presence of redistributive conflict? In order to answer this question, I develop a game-theoretic model of two-dimensional electoral competition in which voters have divergent preferences over policies of recognition and income redistribution, while candidates have the option of resorting to violence and subverting democracy if they are dissatisfied with the election results. First, I find that democracies at medium income levels remain stable with or without policies of recognition and do not deviate from the status quo policy on this issue due to redistributive consequences of such a deviation for the poor group supporting the status quo. Second, when income distribution is more equal in democracies that block recognition, ethnic minorities have stronger incentives to initiate a fight on behalf of their recognition demands. Third, ethnically heterogenous coalitions may redistribute more than homogenous coalitions if deviations to break a coalition lead to inter-group fighting.
... Whether other group-based identities produce the same kind of distraction is an open question, but as a theoretical matter there is little reason to think that religious identification would differ from ethnic or racial identification in its tendency to modify the preferences of the poor over redistribution. Indeed, Austen-Smith and Wallerstein (2006), provide a model in which a racial dimension of politics alters preferences for redistribution in much the same way as religion, and Shayo (2007) produces similar outcomes when modeling national identity as the second dimension. ...
... To the extent poor members of society are more responsive to group-based identities than income-based identities, they prefer lower levels of redistribution. Shayo provides some intuitions on the structural factors likely to influence this sense of difference within and between groups, suggesting the potential importance of pre-5 For an exception, see Austen-Smith and Wallerstein (2006). They find that race has an important impact on preferences for redistribution when affirmative action serves as an alternative redistribution, even in the absence of in-group affinities or out-group antagonisms-what they refer to as a prejudicefree setting. ...
... Many important works have explored why the poor do not demand and obtain more redistribution. Different explanations highlight issues of information, preferences, lack of cohesion, endogenous turnout (Mahler et al. 2014;Chong and Olivera 2008), expectations of future mobility (Benabou and Ok 2001) and the presence of other dimensions-such as race or religion-that sidetrack the poor from redistributive concerns (Alesina and Glaeser 2004;Austen-Smith and Wallerstein 2006;Scheve and Stasavage 2006;De la O and Rodden 2008 ). Some of these factors are potentiated by characteristics of de jure political institutions such as electoral systems (Iversen and Soskice 2006) or federal arrangements (Dixit and Londregan 1998;Díaz-Cayeros 2016;Dunn 2022). ...
Inequality is a crucial issue in Latin America and the Caribbean, alongside very low productivity gains over the last 60 years and low levels of investment and efficiency. Most literature, especially on the political economy determinants of these problems, has considered these issues individually. This article revisits the discussion on the political economy of redistribution (or lack thereof) in the region, embedding it in a broader political economy debate. We characterize the region and its countries in terms of the size of the public sector, the extent of fiscal redistribution and the efficiency of public action. We summarize various strands of literature that explain elements of the fiscal vector individually and provide a framework that combines elements from several strands, explaining why different countries exhibit different configurations of government size, redistribution and efficiency.
... In this case political constituencies are based on ideology rather than income level (different from the traditional models) and the rich liberal voter becomes the decisive voter. This paper also complements the existing literature in political economics using models of multidimensional politics [14][15][16]. ...
This paper studies the effect of income inequality and voters’ support for public spending on the choice of size of the welfare state. Based on new empirical findings showing that preferences for taxation depend on the nature of the policies financed with tax revenues (Barnes 2015, Ballard-Rosa 2016, Roosma 2016, and Berens 2019) I build a Downsian two-party political competition framework in which voters differ in both income (rich or poor) and ideology (liberal or conservative). Government provides two types of public services: one that increase the size of the welfare state and other that does not. Liberal (conservative) voters only care about the public service that increase (do not increase) the size of the welfare state. I find that the decisive voter and the size of the welfare state depends on both the level of income inequality and voters’ support for public spending. In particular, and different from the traditional models on redistributive politics (Romer 1975, Roberts 1977, and Meltzer 1981), I obtain that an increase in pre tax income inequality may reduce the size of the welfare state chosen by majority voting.
... First, the development of digital finance can effectively reduce the information asymmetry between enterprises and financial lenders. The adequacy of a company's internal capital and the effectiveness of external financial markets determine whether the company can obtain sufficient funds to invest in R&D activities [45]. Due to the information asymmetry that prevails in actual business activities, and the fact that financial markets are not fully efficient, information costs for both the supply and demand of capital arise, thereby limiting firms' ability to obtain external financing [46]. ...
This paper summarizes the transmission chain of “digital finance-financing constraint-firm innovation” at the theoretical and practical levels, incorporates digital finance into the empirical analysis framework of firm innovation, selects the data of Chinese GEM(Growth Enterprise Market)-listed companies from 2011 to 2020, and matches the data of the digital inclusive finance index. The paper empirically examines the incentive effect and impact mechanism of digital finance on SME innovation through the two-way fixed-effects model and mediated-effects model by matching the data of China GEM-listed companies from 2011 to 2020 with the digital financial inclusion index data. The findings show that the digital development and promotion of digital finance play a significantly positive impact in helping SMEs innovate and stimulate innovation. The effect is realized by alleviating corporate financing constraints. Further, digital finance has different incentive effects on enterprises with varying rights of property nature, as well as on other regions.
... On the economics side, a large literature exists examining statistical discrimination, dating back to Arrow [2]. Prior work has attempted to study the effect of affirmative action in the labor market to remove stereotypes [3,5,8,12,18], where stereotypes are defined as misrepresenting the quality of a worker from a disadvantaged group, when groups are assumed to be ex-ante equal. The models of [5] and [12] are the most related to the present work: they both set up a game in a market between workers and employers, where workers have the choice to invest in themselves to become qualified, and emit a test signal that employers threshold as their policy. ...
The study of fairness in intelligent decision systems has mostly ignored long-term influence on the underlying population. Yet fairness considerations (e.g. affirmative action) have often the implicit goal of achieving balance among groups within the population. The most basic notion of balance is eventual equality between the qualifications of the groups. How can we incorporate influence dynamics in decision making? How well do dynamics-oblivious fairness policies fare in terms of reaching equality? In this paper, we propose a simple yet revealing model that encompasses (1) a selection process where an institution chooses from multiple groups according to their qualifications so as to maximize an institutional utility and (2) dynamics that govern the evolution of the groups' qualifications according to the imposed policies. We focus on demographic parity as the formalism of affirmative action.
We first give conditions under which an unconstrained policy reaches equality on its own. In this case, surprisingly, imposing demographic parity may break equality. When it doesn't, one would expect the additional constraint to reduce utility, however, we show that utility may in fact increase. In real world scenarios, unconstrained policies do not lead to equality. In such cases, we show that although imposing demographic parity may remedy it, there is a danger that groups settle at a worse set of qualifications. As a silver lining, we also identify when the constraint not only leads to equality, but also improves all groups. These cases and trade-offs are instrumental in determining when and how imposing demographic parity can be beneficial in selection processes, both for the institution and for society on the long run.
... On the economics side, a large literature exists examining statistical discrimination, dating back to Arrow [A + 73]. Prior work has attempted to study the effect of affirmative action in the labor market to remove stereotypes [CL93,HC18,MN04,ASW06,FV92], where stereotypes are defined as misrepresenting the quality of a worker from a disadvantaged group, when groups are assumed to be ex-ante equal. The models of [CL93] and [HC18] are the most related to the present work: they both set up a game in a market between workers and employers, where workers have the choice to invest in themselves to become qualified, and emit a test signal that employers threshold as their policy. ...
The study of fairness in intelligent decision systems has mostly ignored long-term influence on the underlying population. Yet fairness considerations (e.g. affirmative action) have often the implicit goal of achieving balance among groups within the population. The most basic notion of balance is eventual equality between the qualifications of the groups. How can we incorporate influence dynamics in decision making? How well do dynamics-oblivious fairness policies fare in terms of reaching equality? In this paper, we propose a simple yet revealing model that encompasses (1) a selection process where an institution chooses from multiple groups according to their qualifications so as to maximize an institutional utility and (2) dynamics that govern the evolution of the groups' qualifications according to the imposed policies. We focus on demographic parity as the formalism of affirmative action. We then give conditions under which an unconstrained policy reaches equality on its own. In this case, surprisingly, imposing demographic parity may break equality. When it doesn't, one would expect the additional constraint to reduce utility, however, we show that utility may in fact increase. In more realistic scenarios, unconstrained policies do not lead to equality. In such cases, we show that although imposing demographic parity may remedy it, there is a danger that groups settle at a worse set of qualifications. As a silver lining, we also identify when the constraint not only leads to equality, but also improves all groups. This gives quantifiable insight into both sides of the mismatch hypothesis. These cases and trade-offs are instrumental in determining when and how imposing demographic parity can be beneficial in selection processes, both for the institution and for society on the long run.
... The second channel operates through a potential mismatch between the demand and supply of policy platforms. This channel is sometimes labelled the policy bundle effect (Roemer, Lee, and Van der Straeten 2007;Austen-Smith and Wallerstein 2006) or, more generally, as effects of "second dimension politics" (Iversen 2006). When there is more than one salient dimension in political competition, then political parties need to bundle together different policies when they run for election. ...
... Furthermore, affirmative action can devalue the achievements of minorities, because people infer that success is not exclusively due to competence but also at least partially due to receiving additional help (Heilman, Block, & Lucas, 1992;Major, Feinstein, & Crocker, 1994). Also, affirmative action can replace old wrongs with new wrongs and by making the less-advantaged members of the majority the principal losers (Austen-Smith & Wallerstein, 2006). Despite this, many people support affirmative action, because they consider that affirmative action helps in overcoming earlier injustice and thus can lead to a fairer distribution. ...
Women are still underrepresented in management and men hold the majority of higher positions. Nonetheless, one often-heard claim in popular media is that female people-centered leadership skills (empathy, communication, etc.) are a better match for the business world – especially in the future. Furthermore, a related idea is that women may use this advantage to take over men’s dominant position in leadership. Four studies show that such claims paradoxically maintain gender inequality, by undermining support for affirmative action to reduce female underrepresentation in leadership. Where earlier research shows that positive stereotypes can hurt women by suggesting that they are unqualified for leadership, the current findings show that even positive stereotypes that claim that women are particularly well qualified for leadership can hurt women in their chances for gaining leadership positions. Although it is good to highlight the advantages of female leadership, exaggerated and sensationalist claims contribute to a perpetuation of gender inequality.
... Some scholars have offered evidence that AAP is useful and effective in increasing employment and business opportunities for disadvantaged and under-represented groups (Austen-Smith & Wallerstein, 2006;Harper & Reskin, 2005;Konrad & Linnehan, 1995), while others have claimed that it has negative effects on employment, mainly focusing on the more damaging consequences on organisations and individuals (Blanchflower & Wainwright, 2005;Desai & Kulkarni, 2008). ...
Few public and social policy subjects have attracted as much attention as Affirmative Action Policy (AAP) in social sciences. AAP’s main aim is to eliminate or prevent past discrimination against disadvantaged groups and to enhance their position in society. Its role has become controversial around the world. In Saudi Arabia, despite changes and improvements in laws and strategies, over past decades, to tackle the age-old issue of native unemployment, the problem is still deeply ingrained in society. This research has investigated the role, effectiveness and consequences of AAP on Saudi labour market structure. The research has employed a pragmatic methodology over three phases of analysis. The first phase has been based on an interpretive paradigm, and been conducted through semi-structured interviews with labour market experts, to identify and understand the policy. The interviews have been analysed using a thematic analysis technique. The findings of this phase contributed significantly to the understanding of AAP’s legislative nature and role. Two different historical versions of AAP (pre- and post-2011) have been identified. The earlier version (pre-2011) was found to be a non-strategic and vague policy that made no real impact on natives’ employment, while the new version (post-2011) has been positive in increasing native employment (relatively), but it has been associated with serious unintended consequences due to its stricter enforcement. The second phase has been based on a positivist paradigm, and been conducted through time-series analysis (2004-2014), to examine policy effects on labour market structure. The results have indicated that, in addition to the continuing issue of the high inward flow of expatriates, AAP has failed to either improve the distribution of job opportunities across the country, or enhance structural issues with some occupations in the private sector. The third phase has also been based on a positivist paradigm, and was carried out using a survey (sent to over 1,000 participants) examining the policy’s socio-psychological effects on employees. The findings have suggested that employees tend to perceive AAP negatively. Mainly, the results reveal a strong correlation between AAP and all types of discrimination, both individual and institutional, and such a negative perception of discrimination has direct and indirect effects on employees’ intention to leave. The main contribution of this research is to provide much desired information on the AAP’s practice and approaches, in an interesting context. The research provides vital information about old and new AAP legislations in Saudi Arabia. Two frameworks have been developed, (with one being tested), to understand the policy effects from different perspectives. Importantly, the research shows how a strict form of AAP can have side effects on the beneficiary group and destabilise the labour market.
... To obtain these results though, he introduces and applies a non-conventional equilibrium concept since such two-dimensional models rarely admit a Nash equilibrium in pure strategies. Moreover Austen-Smith and Wallerstein (2006), Lizzeri and Persico (2001Persico ( , 2004), Levy (2004), Fernández and Levy (2008) and Huber and Ting (2013) also explore how diversity among the voters affects the size of government and the type of redistribution. But in all these papers, preference diversity among voters is considered to be of economic nature (some prefer general interest policies while others prefer specialized transfers) and not in relation to some non-economic issue as in this paper or as in Krasa and Polborn (2014a). ...
We study an electoral competition model in which each voter is characterized by income level and non-economic characteristics, and where two vote share maximizing candidates, with fixed non-economic characteristics (differentiated candidates), strategically promise a level of redistribution. We prove existence of a unique Nash equilibrium which is characterized by policy convergence or divergence depending on whether candidates redistribution technologies are symmetric or not. Perhaps more importantly, we show that, independently of whether the equilibrium is convergent or divergent, there are three predominant effects on equilibrium tax rates: the group-size effect (the larger an income group, the larger its influence on equilibrium tax rate), the income effect (poor voters are more responsive to a redistributive transfer) and the within-group homogeneity effect (the degree to which voters of the same income group have similar non-economic characteristics). The latter drags redistribution toward the preferred level of redistribution of the less “divided”—in terms of non-economic characteristics—income group and may dominate over the other two.
... In this framework, redistributive policy, specifically the equilibrium tax rate, is determined by the relative sizes and political sensitivities of the rich and the poor. Political sensitivity has not been widely and consistently 1 Austen-Smith and Wallerstein (2006), in the only other formal study of redistribution involving both race and class, study redistribution in the presence of affirmative action policies. Alesina, Baqir and Easterly (1999) intend their model to describe only spending on productive public goods, although it could be applied to more general redistributive policies. ...
When racial groups differ in terms of their political sensitivity—the propensity of group members to change their vote based on changes in redistribution promised by a candidate—the racial composition of a political jurisdiction affects redistributive pol-icy even when preferences are correlated only with income. Furthermore, the extent to which race and class are cross-cutting is important. Although the concept of cross-cutting cleavages is well-known in political science and sociology, its implications have yet to be analyzed formally. This paper formally defines, develops and tests a model of cross-cutting cleavages to better understand the complex relationships between race, class, preferences, political sensitivity and redistributive policy. I show that the ef-fect of cross-cutting cleavages on redistributive policy depends critically on economic parity—the ratio of average black income to average income. The cross-cutting cleav-ages model makes six predictions that are all supported by data from large U.S. cities between 1942 and 1972.
... Third, there is a separate line of research on the choice of economic policy in democracies which has studied policy implications of ethnic diversity through various democratic channels. In this body of work, ethnic diversity and its impact on policy-making have been analyzed by focusing on affirmative action policies, provision of specific public goods, or targeted redistribution via coalition formation between different ethnic and income groups (Roemer 1998, Austen-Smith and Wallerstein, 2006, Huber and Stanig, 2007 and Bandiera and Levy, 2008). 9 In contrast to the literature on political-economic determinants of democratic stability, in this latter set of studies, the relevant actors do not have the option of abolishing the democratic framework in the face of policy choices not preferred by some segment of society. ...
How do policies that imply official recognition of ethnic identities affect democratic stability in the presence of redistributive conflict? In order to answer this question, I develop a game-theoretic model of two-dimensional electoral competition in which voters have divergent preferences over policies of recognition and income redistribution, while candidates have the option of resorting to violence and subverting democracy if they are dissatisfied with the election results. First, I find that democracies at medium income levels remain stable with or without policies of recognition and do not deviate from the status quo policy on this issue due to redistributive consequences of such a deviation for the poor group supporting the status quo. Second, when income distribution is more equal in democracies that block recognition, ethnic minorities have stronger incentives to initiate a fight on behalf of their recognition demands. Third, ethnically heterogenous coalitions may redistribute more than homogenous coalitions if deviations to break a coalition lead to inter-group fighting.
... Fernàndez and Levy (2008) examine how the number of ethnic groups affects incentives of poor voters to support right-wing parties to obtain group-based benefits. And Austen-Smith and Wallerstein (2006) examine how the ability to target transfers based on race affects redistribution. Although none of these models shares the institutional structure of our model or its focus on cross-over voting, like our model, they each underscore the fact that the distribution of government resources occurs along pathways other than income-based redistribution. ...
Why might citizens vote against redistributive policies from which they would seem to benefit? Many scholars focus on "wedge" issues such as religion or race, but another explanation might be geographically-based patronage or pork. We examine the tension between redistribution and patronage with a model that combines partisan elections across multiple districts with legislation in spatial and divide-the-dollar environments. The model yields a unique equilibrium that describes the circumstances under which poor voters support right-wing parties that favor low taxes and redistribution, and under which rich voters support left-wing parties that favor high taxes and redistribution. The model suggests that one reason standard tax and transfer models of redistribution often do not capture empirical reality is that redistributive transfers are a less efficient tool for attracting votes than are more targeted policy programs. The model also underlines the central importance of party discipline during legislative bargaining in shaping the importance of redistribution in voter behavior, and it describes why right-wing parties should have an advantage over left-wing ones in majoritarian systems.
... For example Snyder and Kramer (1988) investigated voting on a progressive income tax in the presence of an untaxed alternative economy, but found difficulties in showing the existence of equilibrium. Voting behaviour in a Meltzer-Richard model also changes in the presence of social divisions including religion (Scheve and Stasavage 2006), moral values (Roemer 1998, Benabou andTirole 2006), race (Alesina and Glaeser 2003), and the quality of jobs (Austen-Smith and Wallerstein 2006). ...
From book synopsis:
Tax by Design identifies what makes a good tax system for an open developed economy in the 21st century and suggests how the UK tax system could be reformed to move in that direction. The recommendations stress the importance of neutrality and transparency in tax design. It draws on the expert evidence from the commissioned chapters and commentaries in Dimensions of Tax Design. It also acknowledges the growing importance of globalised markets and multinational corporations as well as the challenges created by changing population demographics, the growth of new technologies, and the broadened objectives of policy makers.
... Two other papers have recently developed di¤erent political-economy models where the presence of a second policy issue a¤ects income redistribu- tion. First, Austen-Smith and Wallerstein (2006) use a model of legislative politics to study the consequences of ethnic divisions for redistributive policy choice. They show how the introduction of an additional policy dimension, namely a¢ rmative action, bene…ts the skilled members of both the majority (white) and minority (black) group, but hurts unskilled whites and blacks. ...
We develop a model where voters differ in their exogenous income and in their ideological views regarding what we call 'racism'. Electoral competition, modelled à la Levy (2004), takes place between (one or several) parties which propose platforms consisting of both an ideological and an economic dimension. Our objective is to explain the emergence of racist policies when a majority of voters is not racist, and to understand the role played by political parties in this emergence. We first show that, in a pure citizen-candidate model where parties are absent, the only equilibrium consists of the non-racist policy. We then show that allowing for the formation of political parties generates equilibria with racist policies. Finally, our main result states that, if the economic issue is sufficiently salient compared to the ideological one, all equilibria consist of a racist policy, and that the lowest degree of racism of these policies increases with the proportion of poor people in the economy.
This article presents an explanation to observed trends in redistribution and cultural and political polarization. I extend a one-dimensional voting model by taking into account that voters, in addition to having economic preferences, also care about cultural issues. Political parties diverge in the cultural dimension to be able to implement different tax rates. A higher level of pre-tax income inequality makes it more difficult to win the election by proposing a low tax rate, but the right-wing party may be able to win the election by bundling a low tax rate with a focus on cultural issues.
This article investigates the dynamics of competition among organizations with unequal expertise. Multiagent reinforcement learning (MARL) has been used to simulate and understand the impact of various incentive schemes designed to offset such inequality. We design Touch-Mark, a game based on well-known multiagent particle environment, where two teams (weak and strong) with unequal but changing skill levels compete against each other. For training such a game, we propose a novel controller-assisted MARL algorithm C-MADDPG, which empowers each agent with an ensemble of policies along with a supervised controller that by selectively partitioning the sample space and triggers intelligent role division among the teammates. Using C-MADDPG as an underlying framework, we propose an incentive scheme for the weak team such that the final rewards of both teams become the same. We find that despite the incentive, the final reward of the weak team falls short of the strong team. On inspecting, we realize that an overall incentive scheme for the weak team does not incentivize the weaker agents within that team to learn and improve. To offset this, we now specially incentivize the weaker player to learn and, as a result, observe that the weak team beyond an initial phase performs at par with the stronger team. The final goal of this article has been to formulate a dynamic incentive scheme that continuously balances the reward of the two teams. This is achieved by devising an incentive scheme enriched with an RL agent, which takes minimum information from the environment.
Redistribution is an important regulation mechanism commonly used to benefit the whole society by transferring capital to low-income members. How redistribution influences the evolution of cooperation, which has a crucial impact on the sustainable development of society, is studied in this paper. Spatial public goods game models are established and players utilize aspiration dynamics as the updating rule where strategies are chosen by comparing payoffs with an expected aspiration. Both the homogeneous aspiration and heterogeneous aspiration distributions are considered. It is found that redistribution significantly promotes the cooperation. However, with the increase of individual greed, the growth rate of cooperation level has a peak with the increase of redistribution proportion. Furthermore, the effect of redistribution on cooperative promotion under different aspiration distributions varies with the proportion of redistribution. Moreover, the evolutionary results in heterogeneous networks and regular graphs are compared. It is found that the promotion of redistribution for cooperation is more evident in heterogeneous networks, especially when hub nodes have larger aspirations.
Most work on redistribution in democracies is anchored in longstanding unidimensional models, notably the seminal Meltzer-Richard-Romer model. When scholars venture outside the security of unidimensionality, many either abandon theoretical rigor or miss the full consequences of adding more dimensions (whether ideological or economic). There is now a substantial literature on redistributive politics in multidimensional policy spaces, but it tends to be very technical and frequently misinterpreted, if not ignored. This purpose of this article is to review this relatively new literature using simple graphical representations, focusing on the key assumptions, intuitions, and results. We show how issue bundling, issue salience, and the distribution of preferences can affect redistribution, and we discuss the role of political institutions in inducing particular outcomes. We also highlight the opportunities for dialogue between formal models and more constructivist approaches by exploring the effects of political entrepreneurs manipulating salience, institutions, and even identities. Expected final online publication date for the Annual Review of Political Science Volume 21 is May 11, 2018. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.
Mandated political representation for minorities involves earmarking certain electoral districts where only minority-group candidates are permitted to contest. This paper builds a political-economy model to analyse the effect of such affirmative action on redistribution in equilibrium. The model predicts that in situations where the minority is economically disadvantaged and where voters exhibit an in-group bias, such a quota can reduce transfers to poorer groups. This suggests that the gains to the minority group from having such quotas are unevenly distributed. Redistribution in reserved districts leads to a rise in within-group inequality for the minorities.
This paper examines the relationship between elected minority representatives, i.e. Scheduled Castes (SC) and Scheduled Tribes (ST) and health worker visits in rural India. We estimate the effect of minority representation on the frequency of visits to villages by health workers by exploiting the state variation in the share of seats reserved for the two minority groups in state legislative assemblies mandated by the Constitution of India. Using data from state and village level surveys on 15 major Indian states, we find that ST representatives increase the frequency of visits by both doctors and mobile medical units. In contrast, SC representatives have a tendency to decrease the frequency of visits by mobile medical units. Potential explanations for the differential impact of SC and ST representatives are also explored, including geographic isolation, support for the Congress Party, a shift in power, and relative population shares.
I consider a society which is jointly committed to ensuring equal opportunity and to increasing aggregate wealth but is faced with the vestiges of past discrimination in the form of a historically skewed distribution of social resources. Focusing on the problem of allocating the existing (fixed) quantity of social inputs, I consider two policy instruments: directly transferring resources from the advantaged to the disadvantaged or affording preferential treatment in employment to the disadvantaged group (affirmative action). After describing the general procedure for determining an optimal policy, I demonstrate by means of an example that either of the instruments might constitute an optimal remediation policy and I identify conditions which favor each.
Until the Supreme Court put an end to it in Shelby County v. Holder, section 5 of the Voting Rights Act was widely regarded as an effective, low-cost tool for blocking potentially discriminatory changes to election laws and administrative practices. The provision the Supreme Court left standing, section 2, is generally seen as expensive, cumbersome, and almost wholly ineffective at blocking changes before they take effect. This Article argues that the courts, in partnership with the Department of Justice, could reform section 2 so that it fills much of the gap left by the Supreme Court's evisceration of section 5. The proposed reformation of section 2 rests on two insights: first, that national survey data often contains as much or more information than precinct-level vote margins about the core factual matters in section 2 cases; and second, that the courts have authority to regularize section 2 adjudication by creating rebuttable presumptions. Most section 2 cases currently turn on costly, case-specific estimates of voter preferences generated from precinct-level vote totals and demographic information. Judicial decisions provide little guidance about how future cases each relying on data from a different set of elections are likely to be resolved. By creating evidentiary presumptions whose application in any given case would be determined using national survey data and a common statistical model, the courts could greatly reduce the cost and uncertainty of section 2 litigation. This approach would also reduce the dependence of vote dilution claims on often-unreliable techniques of ecological inference and would make coalitional claims brought jointly by two or more minority groups much easier to litigate.
The literature on the politics of inequality and redistribution in advanced democracies has become very large in recent years. This article focuses on several areas where important new arguments are being put forward. It reviews recent work on the interaction of unions and employers, the role of political parties and electoral institutions, and the effects of racial and religious diversity. It also discusses the implications of recent work in behavioural economics and political science that helps us to understand cross-national variation in political responses to inequality. It highlights the distinctive contributions of several 'schools' of research, and identifies linkages across different analytical approaches.
Consider a model with two types of jobs. The profitability of hiring a worker to a fast-track job depends not only on his or her observable talent, but also on incontractible effort. We investigate whether self-fulfilling expectations may lead to higher hiring or promotion standards for women. If employers expect women to do more household work than men, thereby exerting less effort in their paid job, then women must be more talented to make it profitable to hire them. Specialization in the family will then result in women doing most of the household work. Such self-fulfilling prophecies can be defeated by affirmative action or family policy. However, it is unlikely that temporary policy can move the economy to a symmetric equilibrium: policy must be made permanent. Anti-discrimination policy need not enhance efficiency, and from a distribution viewpoint this is a policy with both winners and losers.
This article examines the relationship between economic inequality, electoral turnout and redistributive spending. I use the Current Population Survey to create direct measures of the income of the median voter to investigate its effect on spending and its relationship with inequality and turnout. In the 50 US states from 1978 to 2002, I find little effect of these direct measures on redistributive outcomes; nor do the individual characteristics of the median voter appear to mediate the effects of turnout and inequality measured at the state level. Thus I find no support for the contention that turnout affects government spending via increasing the political representation of the poor. In contrast to cross-national findings, across US states the income of the median voter is not strongly affected by turnout, but rather by other state characteristics.
The dominant theoretical approaches in the comparative political economy of the welfare state provide alternative accounts for why some governments spend more on social policies than others. In the first, poor voters seek to increase their current income by taxing the rich, and social policy serves to redistribute income from the rich to the poor. In the second account, voters seek social insurance against future job loss, and social policy serves as an insurance mechanism rather than a redistributive one. Both of these accounts share the assumption that voters can clearly distinguish between the redistributive and insurance elements of public policy and, therefore, that individual-level characteristics (income, labor market risks) systematically shape preferences over social policy. Our goal is to examine the soundness of that behavioral assumption. We do so with a laboratory experiment that involves economic production, voting on taxation and fiscal transfers. We treat subjects with social policies that vary in their level of redistribution and insurance to examine how this impacts their preferred tax rate. We complement the experimental evidence with data from original survey questions that assess voters’ knowledge of the distributive characteristics of different social policies in the U.S. Evidence from both settings suggest only marginal support for behavioral underpinnings of the standard insurance model, particularly as the empirical setting more closely approximates the real world.
We analyze the process of democratization in a polity with groups that are divided along ethnic as well as economic lines. We show that: (i) the presence of ethnic minorities, in general, makes peaceful democratic transitions less likely; (ii) minorities suffer from discriminatory policies less in democracies with intermediate levels of income inequality; and (iii) in new democracies with low levels of income inequality, politics is divided along ethnic lines, and at greater levels of inequality economic cleavages predominate.
Why might citizens vote against redistributive policies from which they would seem to ben- et? Many scholars focus on \wedge" issues such as religion or race, but another explanation might be geographically-based patronage or pork. We examine the tension between redistri- bution and patronage with a model that combines partisan elections across multiple districts with legislation in spatial and divide-the-dollar environments. There are two types of voters, poor and rich, each of whom have natural ideological allegiances with the left and right parties, respectively. The model yields a unique equilibrium that allows us to explore the circumstances under which poor voters support right-wing parties that oppose redistributive transfers. The model predicts that poor voters may support right-wing parties even when a majority of districts are poor, but rich voters do not support left-wing parties when a majority of districts are rich. We also examine the model's implications for the level of redistribution, platform competition, party discipline, and districting.
How does ideological polarization on non-economic matters influence the size of government? We analyze this question using a differentiated candidates framework: Two office-motivated candidates differ in their (fixed) ideological position and their production function for public goods, and choose which tax rate to propose. We provide conditions under which a unique equilibrium exists. In equilibrium, candidates propose different tax rates, and the extent of economic differentiation is influenced by the distribution and intensity of non-economic preferences in the electorate. In turn, the extent of economic differentiation influences whether parties divide the electorate primarily along economic or social lines.
This paper examines the empirical relationship between democracy and different forms of inequality. We argue that democracy creates incentives for targeted as opposed to general redistribution; that ethnic groups are often convenient targets for group-based distribution; and thus that democracy should reduced inequality between ethnic groups, but with little effect on overall inequality. Using a new data set from 75 countries, we find support for this argument: there is a strong and robust relationship between democracy and between-group inequality, but no such relationship exists between democracy and (a) overall inequality, (b) within-group inequality or (c) polarization. Two-stage least squares analysis with a new instrument for democracy (one based on regional democracy scores at the time of regime inception), along with an analysis of lagged democracy's effect on between-group inequality, indicates that democracy likely causes lower BGI. The analysis therefore underlines the attractiveness for parties in competitive democracies of group-based distributive politics as opposed to general "rich-to-poor'' transfers that raise the well-being of all low income individuals.
We analyze how religion affects voting and redistribution. Our model directs attention away from the particular faith, belief or risk attitudes of religious individuals, and emphasizes instead how organized religion opens the door to standard group-based distributive politics. We argue that organized religion makes it possible for the rich and the religious poor to form electoral coalitions in favor of low taxes and limited redistribution. The losers are the secular poor. However, the material reward to the religious poor from supporting such electoral coalitions depends on the institutional context. As state financial support for religion increases, the ideological preferences of the religious poor become aligned with those of the secular poor in favor of parties that support high taxes. The analysis therefore shows that the redistributive preferences of religious individuals should vary with the institutional context, and that we can understand these preferences without assuming that religious individuals have specific core traits that differ from those of secular individuals.
In this paper we analyze the interaction of income and preference heterogeneity in a political economy framework. We ask whether the presence of preference heterogeneity (arising, for example, from different ethnic groups or geographic locations) 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 (or used to fund a general public good) and a series of taxes whose revenue is used to fund specific (targeted) goods tailored to particular preferences or localities.Our analysis demonstrates 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, the only policy that can emerge supports exclusively general redistribution.
I study the effect of voters with a group-based social conscience. Voters care more about the well-being of those belonging to their own group than the rest of the population. Within a model of political tax determination, both fractionalization and group antagonism reduce the support for redistribution. Whereas within group inequality increases support for redistribution, inequality between groups has the opposite effect. These results hold even if a poor group forms a majority. Using a panel constructed from US micro data, I find support for the hypothesis that within race inequality increases redistribution while between race inequality decreases redistribution.
This article examines public attitudes toward university admissions rules by focusing on the imposition of the costs of racial diversity across majority citizens. High-income majority citizens, who tend to have better academic qualifications, favor more diversity under affirmative action, which imposes its costs on marginal majority candidates. Low-income majority citizens prefer less diversity under affirmative action and would rather achieve diversity by de-emphasizing academic qualifications. Increasing income inequality among majority citizens tends to reduce the median citizen's support for affirmative action. Our results help explain why affirmative action has become increasingly unpopular among white voters and why white voters who oppose affirmative action may support top-x-percent rules like those recently introduced in California, Florida, and Texas. (JEL D72, D78, I23) The Author 2009. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.
I construct a model of public policy development, and use the model to explain why the United States has a comparatively small public sector, but instead a large "private welfare state" with employment-based benefits. The key factors are politically organized firms and labor unions. These interest groups can use campaign support to influence a political decision-maker who decides whether to implement a social benefit. In addition, the firms can influence the outcome indirectly by privately providing their own workers with the benefit. This setup leads to three possible outcomes. In the first, no one is provided the social benefit. In the second, all workers receive it through government provision. In the third, some workers receive the policy, through their employers. I argue that the features leading to the third equilibrium correspond closely to political institutions and industry characteristics of the US, while the features of the second equilibrium better describe European countries.
We study the decentralization of redistributive taxation in a political economy model assuming regional heterogeneity regarding both group identity and average income. If a centralized system permits a beneficial pooling of national resources, it might also decrease the degree of solidarity in the society. With no group loyalty, centralization Pareto-dominates decentralization even when regions are not identical. Furthermore, increased heterogeneity need not increase the relative efficiency of decentralization. If regions are equally rich, centralization Pareto-dominates decentralization whenever group loyalty is not perfect. Finally, centralization is always more efficient than decentralization even when allowing for interregional transfers.
This paper models the interaction between individuals' identity choices and redistribution. Both redistributive polices and identity choices are endogenous, and there might be multiple equilibria. The model is applied to ethnicity and social class. In an equilibrium with high taxes, the poor identify as poor and favor high taxes. In an equilibrium with low taxes, at least some of the poor identify with their ethnic group and favor low taxes. The model has two main predictions. First, redistribution is highest when society is ethnically homogenous, but the effect of ethnic diversity on redistribution is not necessarily monotonic. Second, when income inequality is low, an increase in income inequality might induce the poor to identify with their ethnic group and therefore favor lower taxes.
This article examines public attitudes toward university admissions rules by focusing on the imposition of the costs of racial
diversity across majority citizens. High-income majority citizens, who tend to have better academic qualifications, favor
more diversity under affirmative action, which imposes its costs on marginal majority candidates. Low-income majority citizens
prefer less diversity under affirmative action and would rather achieve diversity by de-emphasizing academic qualifications.
Increasing income inequality among majority citizens tends to reduce the median citizen's support for affirmative action.
Our results help explain why affirmative action has become increasingly unpopular among white voters and why white voters
who oppose affirmative action may support top-x-percent rules like those recently introduced in California, Florida, and Texas. (JEL D72, D78, I23)
Bargaining in legislatures is conducted according to formal rules specifying who may make proposals and how they will be decided. Legislative outcomes depend on those rules and on the structure of the legislature. Although the social choice literature provides theories about voting equilibria, it does not endogenize the formation of the agenda on which the voting is based and rarely takes into account the institutional structure found in legislatures. In our theory members of the legislature act noncooperatively in choosing strategies to serve their own districts, explicitly taking into account the strategies members adopt in response to the sequential nature of proposal making and voting. The model permits the characterization of a legislative equilibrium reflecting the structure of the legislature and also allows consideration of the choice of elements of that structure in a context in which the standard, institution-free model of social choice theory yields no equilibrium.
In a general equilibrium model of a labor economy, the size of government, measured by the share of income redistributed, is determined by majority rule. Voters rationally anticipate the disincentive effects of taxation on the labor-leisure choices of their fellow citizens and take the effect into account when voting. The share of earned income redistributed depends on the voting rule and on the distribution of productivity in the economy. Under majority rule, the equilibrium tax share balances the budget and pays for the voters' choices. The principal reasons for increased size of government implied by the model are extensions of the franchise that change the position of the decisive voter in the income distribution and changes in relative productivity. An increase in mean income relative to the income of the decisive voter increases the size of government.
We present a model that links heterogeneity of preferences across ethnic groups in a city to the amount and type of public
goods the city supplies. We test the implications of the model with three related data sets: U. S. cities, U. S. metropolitan
areas, and U. S. urban counties. Results show that the shares of spending on productive public goods—education, roads, sewers
and trash pickup—in U. S. cities (metro areas/urban counties) are inversely related to the city's (metro area's/county's)
ethnic fragmentation, even after controlling for other socioeconomic and demographic determinants. We conclude that ethnic
conflict is an important determinant of local public finances.
This landmark theoretical book is about the mechanisms by which special interest groups affect policy in modern democracies. Defining a special interest group as any organization that takes action on behalf of an identifiable group of voters, Gene Grossman and Elhanan Helpman ask: How do special interest groups derive their power and influence? What determines the extent to which they are able to affect policy outcomes? What happens when groups with differing objectives compete for influence? The authors develop important theoretical tools for studying the interactions among voters, interest groups, and politicians. They assume that individuals, groups, and parties act in their own self-interest and that political outcomes can be identified with the game-theoretic concept of an equilibrium. Throughout, they progress from the simple to the more complex. When analyzing campaign giving, for example, they begin with a model of a single interest group and a single, incumbent policy maker. They proceed to add additional interest groups, a legislature with several independent politicians, and electoral competition between rival political parties. The book is organized in three parts. Part I focuses on voting and elections. Part II examines the use of information as a tool for political influence. Part III deals with campaign contributions, which interest groups may use either to influence policy makers' positions and actions or to help preferred candidates to win election.
A key question concerning affirmative action is whether the labor-market gains it brings to minorities can continue without it becoming a permanent fixture in the labor market. The authors argue that this depends on how the policy affects employers' beliefs about the productivity of minority workers. They study the joint determination of employer beliefs and worker productivity in a model of statistical discrimination in job assignments. The authors prove that, even when identifiable groups are equally endowed ex ante, affirmative action can bring about a situation in which employers (correctly) perceive the groups to be unequally productive, ex post. Copyright 1993 by American Economic Association.
Economic research provides extensive evidence regarding discrimination against women and minorities, and some evidence on the redistributive effects of affirmative action. However, it provides much less evidence on affirmative action's impact on efficiency or performance, perhaps the key economic issue in the debate over affirmative action. This review covers all of these issues, but focuses on the efficiency/performance question, drawing on economics and other disciplines. The evidence suggests to us that affirmative action can be implemented with relatively little efficiency loss. Most importantly, the empirical case against affirmative action on the grounds of efficiency is weak at best.
Affirmative action strikes at the heart of deeply held beliefs about employment and education, about the concepts of justice and fairness, and about the troubled history of race relations in America. Published on the 50th anniversary of Brown v. Board of Education, this is the only book available that gives readers a balanced, non-polemical, and lucid account of this highly contentious issue. Beginning with the roots of affirmative action, Anderson describes African-American demands for employment in the defense industry - spearheaded by A. Philip Randolph's threatened March on Washington in July 1941 - and the desegregation of the armed forces after World War II. He investigates President Kennedy's historic 1961 executive order that introduced the term "affirmative action" during the early years of the civil rights movement and he examines President Johnson's attempts to gain equal opportunities for African Americans. He describes President Nixon's expansion of affirmative action with the Philadelphia Plan - which the Supreme Court upheld - along with President Carter's introduction of "set asides" for minority businesses and the Bakke ruling which allowed the use of race as one factor in college admissions. By the early 1980s many citizens were becoming alarmed by affirmative action, and that feeling was exemplified by the Reagan administration's backlash, which resulted in the demise and revision of affirmative action during the Clinton years. He concludes with a look at the University of Michigan cases of 2003, the current status of the policy, and its impact. Throughout, the author weighs each side of every issue - often finding merit in both arguments - resulting in an eminently fair account of one of America's most heated debates. A colorful history that brings to life the politicians, legal minds, and ordinary people who have fought for or against affirmative action, "The Pursuit of Fairness" helps clear the air and calm the emotions, as it illuminates a difficult and critically important issue.
This article presents a model involving employers and two classes of workers, alike except for labels. Employers choose whom to hire and workers choose whether to invest in training. At one equilibrium, employers discriminate, which, the authors show, is Pareto inferior to another equilibrium where no discrimination occurs. On the basis of this observation, an argument for affirmative action is advanced.
ABSTRACT We present a general model of legislative bargaining in which the status quo is an arbitrary point in a multidimensional,policy space. In contrast to other bargaining models, the status quo is not assumed to be bad for all legislators, and delay may be Pareto efficient. We prove existence of stationary equilibria. We show that if all legislators are risk averse or if even limited transfers are possible, then delay is only possible if the status quo lies in the core. Thus, we expect immediate agreement in multidimensional models, where the core is typically empty. In one dimension, delay is possible if and only if the status quo lies in the core of the voting rule, and then it is the only possible outcome. Our comparative,statics analysis yield two noteworthy insights: moderate status quos imply moderate policy outcomes, and legislative patience implies policy moderation. A central objective of research in political economy,is to obtain a general under-
The paper uses a generalized Nash bargain to analyze input levels, profits, and wages in the absence of binding contracts, and compares these with the conventional binding contracts model. It is shown that if the union has any power, investment is lower in the absence of binding contracts. The associated input levels and shareholders' profits are identical to those that emerge if contracts are binding and the firm acts as if it faces a cost of capital which is a linear combination of the purchase price of capital and the resale value. This implicit cost is greater than the purchase price, is an increasing function of union power, and is independent of the profit function and the alternative wage. Increases in union power reduce shareholders' profits but may increase wages at some points and decrease wages at others. In the absence of binding contracts, shareholders' profits are lower but there is a critical level of union power (depending on the profit function) such that the union is worse off if its power is higher than this level and better off if it is lower.
A theory of government formation in parliamentary systems is developed from a model incorporating policy-oriented parties with spatial preferences and a formation process in which parties are selected in sequence to attempt to form a government. A government is formed when the policy proposed by the part selected is sustained on a vote of confidence. The equilibria identify the government and the policy it will implement and depend on the configuration of preferences and on the government formation process. For example, in a political system with two large parties and one small party and in which one of the two large parties will be selected to attempt to form a government, the government will be formed by a large party with the support of the small party. The policy will reflect the preferences of the small party but will be closer to the ideal point of the large party.
As events highlight deep divisions in attitudes between America and Europe, this is a very timely study of different approaches to the problems of domestic inequality and poverty. Based on careful and systematic analysis of national data, the authors describe just how much the two continents differ in their level of State engagement in the redistribution of income. Discussing various possible economic explanations for the difference, they cover different levels of pre-tax income, openness, and social mobility; they survey politico-historical differences such as the varying physical size of nations, their electoral and legal systems, and the character of their political parties, as well as their experiences of war; and they examine sociological explanations, which include different attitudes to the poor and notions of social responsibility. Most importantly, they address attitudes to race, calculating that attitudes to race explain half the observed difference in levels of public redistribution of income. This important and provocative analysis will captivate academic and serious lay readers in economics and welfare systems.
A classification theorem for voting rules on a smooth choice space W of dimension w is presented. It is shown that, for any non-collegial voting rule, σ, there exist integers v
*(σ), w
*(σ) (with v
*(σ)<w
*(σ)) such that(i)
structurally stable σ-voting cycles may always be constructed when w ⪴ v
*(σ) + 1
(ii)
a structurally stable σ-core (or voting equilibrium) may be constructed when w ⪴ v
*(σ) − 1
Finally, it is shown that for an anonymous q-rule, a structurally stable core exists in dimension , where n is the cardinality of the society.
We show that minimum wages may have beneficial effects on human capital allocation in a situation when the marginal product of skilled labor is shared between firm and worker according to bargaining strength. Firms prefer more productive workers to less productive ones, and workers that do not match up to a certain productivity floor are not hired. A minimum wage increases the productivity requirement. To hang on to the primary sector, workers of intermediate talent are then induced to acquire more education, while there is a discouragement effect for workers of lesser talent. A minimum wage can increase welfare even in cases where total education goes down. When the minimum wage is detrimental to welfare, the problem is typically that some workers acquire too much education in the first place.
We consider a political economy with two partisan parties; each party represents a given constituency of voters. If one party (Labour) represents poor voters and the other (Christian Democrats) rich voters, if a redistributive tax policy is the only issue, and if there are no incentive considerations, then in equilibrium the party representing the poor will propose a tax rate of unity. If, however, there are two issues – tax policy and religion, for instance – then this is not generally the case. The analysis shows that, if a simple condition on the distribution of voter preferences holds, then, as the salience of the non-economic issue increases, the tax rate proposed by Labour in equilibrium will fall – possibly even to zero – even though a majority of the population may have an ideal tax rate of unity.
The two main political parties in the United States in the period 1976–1992 put forth policies on redistribution and on issues pertaining directly to race. We argue that redistributive politics in the US can be fully understood only by taking account of the interconnection between these issues in political competition. We identify two mechanisms through which racism among American voters decreases the degree of redistribution that would otherwise obtain. In common with others, we suggest that voter racism decreases the degree of redistribution due to an anti-solidarity effect: that (some) voters oppose government transfer payments to minorities whom they view as undeserving. We suggest a second effect as well: that some voters who desire redistribution nevertheless vote for the anti-redistributive (Republican) party because its position on the race issue is more consonant with their own, and this, too, decreases the degree of redistribution in political equilibrium. This we name the policy bundle effect. We propose a formal model of multi-dimensional political competition that enables us to estimate the magnitude of these two effects, and estimate the model for the period in question. We compute that voter racism reduced the income tax rate by 11–18% points; the total effect decomposes about equally into the two sub-effects. We also find that the Democratic vote share is 5–38% points lower than it would have been, absent racism. The magnitude of this effect would seem to explain the difference between the sizes of the public sector in the US and northern European countries.
A fundamental problem in public finance is the determination of parameters of income tax functions. This paper focuses on this problem in the context of a linear tax function whose parameters are chosen according to majority vote by the taxpayers. The possibility of conflict between high national income and distributional equity is explored and it is found that, even when the distribution of earning power is rightward skew, majority voting does not necessarily lead to the adoption of a tax function which has the average tax rate rising with income.
In many voting situations, preferences over options may fail to be single-peaked. This is especially true when options consist of different amounts of a good which is provided through distortionary taxation. In this paper, voting over linear income tax schedules is considered. Although preferences may fail to be single-peaked, a choice set is shown to exist when only mild restrictions are imposed. For many choices in the public domain, the conditions required for this result are likely to be satisfied.
Interpersonal preferencespreferences that depend on the characteristics of othersare typically hard to infer from observable individual behavior. As an alternative approach, this paper uses survey data to investigate interpersonal preferences. I show that self-reported attitudes toward welfare spending are determined not only by financial self-interest but also by interpersonal preferences. These interpersonal preferences are characterized by a negative exposure effectindividuals decrease their support for welfare as the welfare recipiency rate in their community risesand racial group loyaltyindividuals increase their support for welfare spending as the share of local recipients from their own racial group rises. These findings help to explain why levels of welfare benefits are relatively low in racially heterogeneous states.
This article develops a model of noncompetitive labor markets in which high-wage (good) and low-wage (bad) jobs coexist. Minimum wages and unemployment benefits shift the composition of employment toward high-wage jobs. Because the composition of jobs in the laissez-faire equilibrium is inefficiently biased toward low-wage jobs, these labor market regulations increase average labor productivity and may improve welfare. Copyright 2001 by University of Chicago Press.
This paper studies what determines group formation and the degree of participation when the population is heterogeneous, both
in terms of income and race or ethnicity. We are especially interested in whether and how much the degree of heterogeneity
in communities influences the amount of participation in different types of groups. Using survey data on group membership
and data on U. S. localities, we find that, after controlling for many individual characteristics, participation in social
activities is significantly lower in more unequal and in more racially or ethnically fragmented localities. We also find that
those individuals who express views against racial mixing are less prone to participate in groups the more racially heterogeneous
their community is. These results are consistent with our model of group formation.
We model the electoral politics of redistribution when voters and parties care about inequality in addition to their private
concerns for consumption and votes, respectively. Ideological concerns about income redistribution lead each party to adopt
a general proportional income tax, adjusted to appeal to the ideological leanings of high “clout” groups, with disproportionately
many “swing” voters, which the parties also ply with pork-barrel projects. Our results relate to “Director's Law,” which says
that redistributive politics favors middle classes at the expense of both rich and poor.
Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effects of this uncertainty, a stochastic dynamic growth model with the public sector is examined. It is shown that deterministic excessive red tape and corruption deteriorate the growth potential through income redistribution and public sector inefficiencies. Most importantly, it is demonstrated that the increase in corruption via higher uncertainty exerts adverse effects on capital accumulation, thus leading to lower growth rates.
This paper explains people’s preferences for ethnic and racial diversity in higher education through a model based on self interest Although all citizens from the majority group value diversity and their own education in the same way their preferences for the level of diversity as well as the means of achieving it depend on their competitive positions in university admissions High-income majority citizens who tend to have better academic qualifications than lower-income majority candidates prefer more diversity which they want to achieve through affirmative action by displacing marginal majority candidates for marginal minority candidates Lower-income majority candidates prefer less diversity which they want to achieve through admissions rules that partially ignore academic qualifications Data from a CBS/NYT opinion poll confirm these predictions Our model suggests why recently several American universities have replaced race-conscious admissions policies with race-blind policies that de-emphasize standardized tests with little to no effect on diversity Income inequality and competitive admissions both make banning affrmative action more likely
Public provision of private goods such as education is usually viewed as a form of redistribution in kind. However, does it arise when income redistribution is feasible as well? In this paper I analyse a two-dimensional model of political decision making. Society has to choose both the tax rate and the allocation of the revenues between income redistribution and public provision of education. The political process that I analyse involves endogenous parties. Parties have a unique role in the model; I assume that parties increase the commitment ability of politicians and, as a result, increase the ability of different groups in society to compromise with one another. I find that public provision of education arises as an anti-majoritarian outcome; public provision of education arises only when those who benefit from education, e.g., voters with children, are a minority. The reason is that when education is consumed only by a minority, such redistribution in kind is 'cheap' relative to universal income redistribution, i.e., it can be effectively provided even with low taxes. Public provision of education arises then as a political compromise offered by the party of the poor who benefit from education and the rich voters who prefer low taxes. Thus, when those who benefit from education are a minority, it is publicly provided. When those who benefit from education are a majority, they have to buy private education, since there is no public provision of this good.
The authors analyze incomplete contracts to induce efficient investment. With exogenous switching costs, fixed-price contracts are efficient, generate some rigidity in prices, are renegotiated intermittently by possibly small amounts, and when inflation is positive, generate asymmetric responses to shocks, all consistent with evidence on prices and wages. With two-sided specific investments, efficiency requires prices to have sufficient escalator clauses to avoid renegotiation, as observed in many long-term contracts. A third case, with one-sided specific investments, can generate 'take or pay' contracts and explain why firms sometimes pay for specific investments that appear to benefit employees directly. Copyright 1993 by American Economic Association.
A natural holdup problem arises in a market with search frictions: firms have to make a range of investments before finding their employees and larger investments translate into higher wages. In particular, when wages are determined by ex post bargaining, the equilibrium is always ine#cient: recognizing that capital intensive production relations have to pay higher wages, firms reduce their investments. This can only be prevented by removing all the bargaining power from the workers, but this in turn depresses wages below their social product, and creates excessive entry of firms. In contrast to this benchmark, we show that e#ciency is achieved when firms post wages and workers can direct their search towards more attractive o#ers. This e#ciency result generalizes to an environment with imperfect information where workers only observe a few of the equilibrium wage o#ers. We show that the underlying reason for e#ciency is not wage posting per se, but the ability of workers to direct their search towards more capital intensive jobs. Keywords: E#ciency, Holdup, Search, Wage Posting. JEL Classification: 83 # We thank two anonymous referees, Jonathan Levin, and seminar participants at MIT, NBER and Society for Economic Dynamics Conference. 1
Admission Impossible: Self-interest and A¢rmative Action Working Paper, The Johns Hopkins University. 49 rChung, K-S 2000, Role Models and Arguments for A¢rmative Action
- J Chan
- E Eyster
Chan, J. and E. Eyster. 2002. Admission Impossible: Self-interest and A¢rmative Action. Working Paper, The Johns Hopkins University. 49 rChung, K-S 2000, Role Models and Arguments for A¢rmative Action. American Eco-nomic Review, 99, 640-48
Divided by Color: Racial Politics and Democratic Ideals Public education for the minority, private education for the majorityWorking Paper
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