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The Political Economy of Publicly Provided Private Goods

Dotti, Valerio (2014): The Political Economy of Publicly Provided Private Goods.

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Abstract

Abstract I study the relationship between income inequality and public intervention in education in a voting model. Traditional Political Economy models typically imply a strong relationship between income inequality and public intervention in redistributive policies. Empirical evidence suggests that this may hold true only for certain kinds of policies, e.g. cash transfers, but it may not hold true in the case of social security and education policies. I propose a method to study this relationship in the case in which forms of redistribution other than the public provision of education are available to voters. Moreover, I allow consumers to opt-out of the public education system and get private education. This assumption implies that individual preferences may exhibit non-convexities and therefore the equilibrium may not be unique.

Abstract I show that the relationship between income inequality and governmental intervention implied in the traditional literature is mainly a result of excessively restrictive assumptions. In particular, in a political equilibrium income inequality negatively affects public investment in education if the latter tends to reduce future inequality. This is consistent with the results in the empirical literature about public investment in education.

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