Regional Income Disparity and the Size of the Public Sector

Abstract

This paper explores the impact of income inequality between jurisdictions on government decision making affecting the size of the public sector. We model policy choices as the outcome of regional representatives' negotiations in the legislature. We show that the more unequal interregional income distribution is, the greater the underprovision of public goods. More specifically, greater interregional income disparity leads to a smaller public sector. A wealthier economy as a result may have a relatively smaller government size when income disparity increases. Copyright � 2009 Wiley Periodicals, Inc..

Asymmetric decentralization: distortions and opportunities

“…How policy-making power is divided among levels of governments has received some attention by the literature on federalism starting from the contribution by Buchanan (1987), followed by more recent public choice studies (Congleton et al 2003;Congleton 2006). The main drivers in explaining different decentralized institutional settings concern autonomy issues and public goods provision (Besley and Coate 2003;Cerniglia et al 2019), redistribution grounds and allocation of public resources (Giuranno 2009;Zanardi 2017), regions' political preferences and ethnic conflict within the country (Coakley 2004;Mintz 2019).…”

“…We use a framework similar to that of Besley and Coate (2003) and Giuranno (2009Giuranno ( , 2010. In detail, we consider two equal sized jurisdictions comprising a federation and normalize to one the population of each jurisdiction.…”

Internal Migration and Public Policy

“…However, since we have a model with two regions and two median voters, this assumption could be violated in some cases. For this reason, we also consider case 2), which could apply to some developing countries'situations and, for completeness, case 3), 16 which could apply to countries where median voter income is above the national income in the urban districts and below the average national income in the rural areas.…”

“…We extend Meltzer and Richard (1981) to the case of internal migration in a multi-district economy. Following Giuranno (2009), we note that Meltzer and Richard's logic applies to a median voter in a single jurisdiction. However, gov- Migration can change individual incomes (Korpi and Clark, 2014).…”

Untitled

“…There are some researches indicating that the elite upholding political power in the presence of high inequality is seeking to decrease the public sector. Weaker regions and groups of the society are suffering disproportionately due to this decrease (McCarty, 1993;Giuranno, 2009). We face the risk that Lithuania will experience a constantly growing exclusion process, which will be reinforced by political pressure to decrease the public sector.…”