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WP/044 Income Inequality, Redistribution and Poverty: Contrasting rational choice and behavioural perspectives

Based on the standard axiom of individual utility maximization, rational choice has postulated that higher income inequality translates into greater redistribution by shaping the median voter’s preferences. While numerous papers have tested this proposition, the literature has remained divided over the appropriate measure for redistribution. Revisiting the original contribution by Meltzer and Richard, the present paper argues that the median voter hypothesis implies that relative redistribution should increase in line with inequality. An empirical test based on 110 observations from the Luxembourg Income Study fails to find any support for the hypothesis. By contrast, voters’ actual preferences offer a better guide to understanding redistributive outcomes. The findings challenge the narrow concept of human motivation that underpins rational choice, and point to the importance of fairness orientations that have been emphasized in behavioural economics.
Publisher:
UNU-WIDER
Series:
WIDER Working Paper
Volume:
2012/44
Title:
WP/044 Income Inequality, Redistribution and Poverty: Contrasting rational choice and behavioural perspectives
Authors:
Malte Luebker
Publication date:
May 2012
ISBN 13 Web:
978-92-9230-507-9
Copyright holder:
© UNU-WIDER
Copyright year:
2012
Keywords:
income distribution, redistribution, median voter theorem, behavioural economics
JEL:
D31; D03; H23; H55
Project:
New Approaches to Measuring Poverty and Vulnerability
Sponsor:
UNU-WIDER gratefully acknowledges the financial contributions to the research programme by the governments of Denmark (Ministry of Foreign Affairs), Finland (Ministry for Foreign Affairs), Sweden (Swedish International Development Cooperation Agency—Sida), and the United Kingdom (Department for International Development).
Format:
online
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