SFB 303 Discussion Paper No. A - 591
Author: Grüner, Hans Peter
Title: Inequality and Political Consensus
Abstract: This paper develops a model of political consensus in order to explain
the
missing link between inequality and political redistribution. Political
consensu
s is an implicit agreement not to vote for extreme policy proposals. We show
tha
t such an agreement may play an efficiency-enhancing role. Voters anticipate
that voting for extremist parties increases policy uncertainty in the
future. A pol
itical consensus among voters reduces policy uncertainty because
power-seeking p
oliticians propose non-discriminatory policies in their own interest. We
study h
ow much inequality can be sustained in a democracy and how the limits to
redistr
ibution vary with initial inequality. We find that more inequality need not
lead
to more redistribution. The maximum amount of redistribution decreases with
ine
quality if (and only if) agents are sufficiently patient. In this case
inequalit
y is politically self-sustaining.
Keywords: inequality, representative democracy, political consensus, policy
uncertain
ty, comparative statics in political economy.
JEL-Classification-Number: C72, D31, D70, D72.
Creation-Date: February 1999
URL: ../1999/a/bonnsfa591.pdf
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