Inequality and Size of the Government When Voters Have Other Regarding Preferences

The celebrated relation between inequality and redistribution is based on selfish voters who care solely about own-payoffs. A growing empirical literature highlights the importance of other regarding preferences (ORP) in voting over redistribution. We reexamine the relation between inequality and redistribution, within a simple general equilibrium model, when voters have ORP. Our contribution is five fold. First, we demonstrate the existence of a Condorcet winner. Second, poverty can lead to increased redistribution (which implies a countercyclical social spending to GDP ratio). Third, we show that disposable income strongly median-dominates factor income. Fourth, we show that fair voters respond to an increase in strong median-dominance by engaging in greater redistribution. Fifth, an illustrative empirical exercise using OECD data points to the importance of fairness in explaining redistribution