Redistribution in a Model of Voting and Campaign Contributions
Journal of Public Economics 95(7-8): 646-656, August 2011 [Online Article] [PDF]
I propose a framework in which individual political participation can take two distinct forms, voting andcontributing resources to campaigns, in a context in which the negligible impact of any individual’s actions onaggregate outcomes is fully recognized by all agents. I then use the framework to reassess the relationshipbetween inequality and redistribution. The model shows that, even though each contribution has a negligibleimpact, the interaction between contributions and voting leads to an endogenous wealth bias in the politicalprocess, as the advantage of wealthier individuals in providing contributions encourages parties to move theirplatforms closer to those individuals’ preferred positions. This mechanism can in turn explain why thestandard median-voter-based prediction, that more inequality produces more redistribution, has receivedlittle empirical support: higher inequality endogenously shifts the political system further in favor of the rich.In equilibrium, there is a non-monotonic relationship in which redistribution is initially increasing buteventually decreasing in inequality. I present some empirical evidence supporting the framework, using dataon campaign contributions from US presidential elections. In particular, inequality increases contributions toRepublicans, but not to Democrats, as predicted by the model.