On inequality and the allocation of public spending

Empirical evidence on the link between inequality and redistribution mechanisms is inconclusive, and depends on the nature of the mechanism in question. We present a series of political economy models, and the associated results may be interpreted as being consistent with these facts. Specifically, we demonstrate that the link between inequality and redistribution depends on the nature of the mechanism relative to the alternatives that are available. Our analysis suggests that, in the presence of higher inequality, a median voter faced with the choice of the proportion of expenditure between two mechanisms is likely to choose in favour of public goods that are more efficient mechanisms of redistribution. In some cases, inequality does not matter and the proportion of spending on any particular public good is related only to the preference and technology related parameters of the model.