Working Paper: CEPR ID: DP15641
Authors: Helmuth Cremer; Justina Klimaviciute; Pierre Pestieau
Abstract: This paper studies the political sustainability of programs that are targeted towards the poor. Given that the poor to whom these programs cater do not constitute a majority, we show that for their own good it pays to let the middle class benefit from them in a random way. This approach mimics the actual institutional arrangements whereby middle-class individuals feel that they can successfully apply to the programs. We consider a two stage decision process: first a Rawlsian government chooses the probability at which the middle class is allowed to benefit from a given program; then, majority voting determines the level of benefit and the rate of contribution. At the first, constitutional stage, the government cannot commit to a specific level of taxes and benefit but anticipates that these are set by majority voting in the second stage.
Keywords: targeted transfers; political support; redistribution paradox
JEL Codes: H23; D72; H50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| probability of middle-class inclusion (D31) | political support for the programs (H53) |
| probability of middle-class benefits (J32) | overall tax rate (H29) |
| overall tax rate (H29) | welfare of the poorest individuals (I30) |
| probability of middle-class benefits (J32) | political sustainability of the program (H53) |