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A Theory of Distributional Conflict, Voluntarism and Segregation

Authors


  •  We thank Tim Besley, Craig Brett, Stephen Coate, Richard Cornes, Jim Davies, Jim Hines, Carlo Perroni, Al Slivinski and Ron Wintrobe for comments and suggestions, as well as participants to seminars at the University of Alabama, the University of Birmingham, the Institute for Fiscal Studies, Stanford University, the University of Toronto, Warwick University and the University of Western Ontario, and three anonymous referees. Research support from the British ESRC and Canada's SSHRCC is gratefully acknowledged.

Abstract

Along with the rise in income inequality in the US, there is evidence of a simultaneous move towards fiscal devolution and increased government reliance on private provision of public goods. This article argues that these phenomena are related. We describe a model of jurisdiction and policy formation in which the structure of government provision is endogenous and public good provision levels are determined by a political process that can exploit private motives for voluntary giving. The model predicts that an increase in income inequality leads to decentralisation, with local jurisdictions becoming more income-homogeneous than the population as a whole. This reduction in local income heterogeneity, combined with a reduced tax base, results in increased reliance by government on private provision.

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