A theory of ethnic diversity and income distribution: A legislative bargaining approach |
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| Institution: | 1. WZB, Reichpietschufer 50, 10785 Berlin, Germany;2. Department of Economics, Humboldt-Universität zu Berlin, Spandauer Str. 1, 10178 Berlin, Germany;3. Department of Economics, University of Mannheim, L7 3-5, 68131 Mannheim, Germany;1. Max Planck Institute of Economics, Kahlaische Str. 10, 07745 Jena, Germany;2. DSE, University of Verona, Via dell''Artigliere 19, Verona, Italy;3. Department of Economics, Lund University, P.O. Box 7082, 220 07 Lund, Sweden;1. Department of Economics, Kent State University, Kent, OH 44242, USA;2. Department of Economics, Loyola University Maryland, 4501 N. Charles Street, Baltimore, MD 21210, USA |
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| Abstract: | In this paper, I examine how the two dimensions of income inequality and ethnic diversity affect the formation of political coalitions and the reallocation of income. I construct a legislative bargaining model to analyze when coalitions form along the income dimension and when it forms along the ethnic dimension. The results of the model suggest that the agenda setter selects a partner with a lower aggregate income: a smaller population size and a lower income level. Further, I extend the model from a one-round to a two-round game. The extended model shows that forming an oversized coalition is a possible equilibrium outcome and is consistent with the empirical findings. |
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