An imperfect representative democracy political income redistribution in Latin America

Abstract

Although several papers in the political economy literature suggest a positive relationship between income inequality and redistribution, the data for Latin America does not support this claim. Countries with more income inequality also have less redistribution. This paper explores how the degree of imperfection in the political institutions influences equilibrium redistributive tax rates and income distributions. A citizen-candidate model is developed (Osborne and Slivinski, 1996 and Besley and Coate, 1997) in which candidates face a cost for representing other citizens in politics. Political-economic equilibria for diferent degrees of imperfection of the political system are derived and compared. In particular, two distinct cases are found. Countries where the cost of entry to politics is low can have higher redis tribution and lower inequality if the median run as a candidate or ,when there is a two candidate equilibria, redistribution and inequality could go either way. On the other hand, countries where the cost of entry is high will not be able to translate the will of the people into political action and will end up with little redistribution and high levels of inequality.