Working Paper: CEPR ID: DP7985
Authors: Oriana Bandiera; Gilat Levy
Abstract: This paper analyzes whether political outcomes in local democracies are determined by the preferences of the median -typically poor- agents or whether they reflect the wishes of the wealthy elites. A model shows that when politicians belonging to different groups can form coalitions, the wealthy elites' influence on policy choices is endogenously higher when there is diversity in preferences among the poor. In line with the theoretical predictions, the pattern of public good provision by local governments in Indonesia reveals that when individuals have different preferences --here due to different ethnicities-- democratic policy outcomes are closer to the preferences of the elites, rather than the preferences of the poor majority.
Keywords: democracy; public goods
JEL Codes: D72; H41; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| preference diversity among the poor (J15) | influence of wealthy elites on policy choices (D72) |
| ethnic diversity (J15) | allocation of public goods (H40) |
| share of ethnic minority (J15) | allocation of public goods (H40) |
| viable coalition between elites and segment of poor (D72) | policy outcomes favoring elites (D72) |
| ethnic diversity (J15) | influence of median preferences of the poor (D79) |