Inter- vs. Intraregional Income Inequality and Voting Behavior Within Federations
DISCUSSIONS ON ESTONIAN ECONOMIC POLICY - XVI, University of Tartu, Tallin Technical University and University of Applied Sciences of Kiel, eds., BWV: Berlin, 2008 (CD-ROM)
Posted: 12 Mar 2008 Last revised: 7 Sep 2008
Date Written: May 11, 2007
Income inequality is a very relevant influencing factor for voter's election behavior. In this paper we assume that regions are integrated in a federation. We first analyze the regional voting behavior of individuals considering that regional governments comply with the federative rules. In our model we differentiate several cases of income distribution, e.g. a few wealthy households yield as much income that the region becomes a net contributor to the federation budget. We assume that the central budget is only used for interregional redistribution. Since the income inequality in the region is high, the redistribution of income should be high. Due to the positive contributions to the central (federation) budget the intraregional redistribution becomes smaller. Given that poor households have the majority and that they attend elections for improving their quality of life, a new regional government will win elections. The politics that maximizes interregional income redistribution in favor of the own region and internal redistribution will occur. A non adherence to the federative agreements or alternatively (considering the other federation members regional election outcomes) changes in federation rules will result. On the other side regions may be net recipients of central redistribution in spite their low inner inequality and willingness to pay. In this case the opposite will take place.
Keywords: Public Finance, Poverty
JEL Classification: D31, D63, H73, H77, P16, R58
Suggested Citation: Suggested Citation