Social Preferences and Redistribution under Direct Democracy
University of Leicester, Department of Economics Working Paper No. 08/11
39 Pages Posted: 13 May 2008
Date Written: April 15, 2008
There is growing evidence on the roles of fairness and social preferences as fundamental human motives, in general, as well as in voting contexts. In contrast, models of political economy are based on selfish-voters who derive utility solely from own payoffs. We examine the implications of introducing voters with social preferences, as in Fehr and Schmidt (1999), in a simple general equilibrium model with endogenous labour supply. We demonstrate the existence of a Condorcet winner for voters, with heterogeneous social preferences (including purely selfish preferences), using the single crossing property of voters' preferences. Relatively small changes in the preference of voters can have relatively large redistributive consequences. We derive implications for the size of the welfare state; regional integration; and issues of culture, identity and immigration.
Keywords: Direct democracy, redistribution, other-regarding preferences, single crossing property
JEL Classification: D64, D72, D78
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