Electoral Uncertainty, Income Inequality and the Middle Class

Mitra, Anirban and Mitra, Shabana (2015): Electoral Uncertainty, Income Inequality and the Middle Class. Forthcoming in: Economic Journal

Abstract

We investigate how increased electoral competition — by influencing the equilibrium policies of competing parties — affects the income distribution in society. Our model is embedded in a standard probabilistic voting setup where parties compete at two stages: (i) they allocate resources across various districts and (ii) then, for each district, they divide the resources among the different constituent groups. We show that an increase in electoral competition in a district results in a tendency towards equalization of incomes therein. We check for these relationships using data from the Indian national elections which are combined with household-level consumption expenditure data rounds from NSSO (1987-88 and 2004-05) to yield a panel of Indian districts. We find that districts which have experienced tight elections exhibit lower inequality and polarization which indicates a larger "middle class".

• Item Type: MPRA Paper
• Language: English
• Keywords: Income distribution, polarization, political economy, targeting.
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D78 - Positive Analysis of Policy Formulation and Implementation; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O20 - General

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