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Income Inequality, Redistribution, and Poverty: Contrasting Rational Choice and Behavioral Perspectives
Author(s) -
Luebker Malte
Publication year - 2014
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/roiw.12100
Subject(s) - economics , redistribution (election) , inequality , axiom , redistribution of income and wealth , behavioral economics , poverty , economic inequality , utility maximization , positive economics , proposition , public economics , microeconomics , mathematical economics , public good , economic growth , mathematics , political science , mathematical analysis , philosophy , geometry , epistemology , politics , law
Based on the standard axiom of individual utility maximization, rational choice has postulated that higher income inequality translates into greater redistribution by shaping the median voter's preferences. While numerous papers have tested this proposition, the literature has remained divided over the appropriate measure for redistribution. Revisiting the original contribution by M eltzer and R ichard in 1981, the present paper argues that the median voter hypothesis implies that relative redistribution should increase in line with inequality. However, an empirical test based on 110 observations from the L uxembourg I ncome S tudy ( LIS ) finds no support for the hypothesis. By contrast, voters' actual preferences offer a better guide to understanding redistributive outcomes. The findings challenge the narrow concept of human motivation that underpins rational choice, and point to the importance of fairness orientations that have been emphasized in behavioral economics.