Politically determined income inequality and the provision of public goods

Wojciech Olszewski, Howard Rosenthal

Research output: Contribution to journalArticlepeer-review

10 Scopus citations

Abstract

Political processes may bring about Pareto improvements by increasing income inequality in a society that produces a public good by voluntary contributions. Proportional taxation funds a "governing agent." The most endowed agent is the Condorcet winner for governing agent. When the tax rate can also be chosen by a vote, the ideal point of the agent with median initial endowment is the Condorcet winner under Cobb-Douglas utility. If Pareto improvements are possible, this ideal point corresponds to Pareto improvement. Pareto improvement may also be possible, even when a Leviathan set taxes, if there is deadweight loss from taxation. Pareto improvements are indeed always possible in "large" societies. On the other hand, no improvements may be possible if the initial distribution of wealth is very unequal in a "small" society, and Condorcet winners may not exist for other utility functions.

Original languageEnglish (US)
Pages (from-to)707-735
Number of pages29
JournalJournal of Public Economic Theory
Volume6
Issue number5
DOIs
StatePublished - Dec 1 2004

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance
  • Sociology and Political Science

Fingerprint Dive into the research topics of 'Politically determined income inequality and the provision of public goods'. Together they form a unique fingerprint.

Cite this