Alumni Changing the World

Fusako Tsuchimoto: “Ethnic Diversity and Income Distribution: Theoretical and Empirical Approach”

Room 10, 2nd floor

Abstract:

This paper examines how the two dimensions of heterogeneity of people in society, income disparity and ethnic diversity, affect the reallocation of the income. I construct a legislative bargaining model to investigate along which dimension political coalition is formed. The results of the model suggest that the preferred partner for a coalition is the group with a smaller population size (cheaper to buy) and lower income level (easier to tax). Furthermore, I extend the model to show that if the rich is in the majority, forming an oversized coalition might be the optimal strategy. I confirm these theoretical findings empirically, using the cross country time series data set.