The politics of redistribution

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SummaryThe combination of low per capita income and inequality in India implies that successful political platforms will pursue policies geared towards redistribution from the rich and middle classes to the poor, including the median voter

Political platforms in India tend to be largely anchored on the idea of redistribution. The widely held belief that redistributive policies are the sole instrument of ensuring success at the hustings leads to a default setting of competitive populism. But are voter preferences for redistribution immutable? Is the combination of low per capita income and high inequality most conducive for political platforms based on redistribution? Or, is there space for alternate policy platforms, in the current milieu of competitive populism, to be politically successful?

Most existing models of political economy tend to be structured around the division of society into three distinct groups—poor, middle and rich. The median voter theorem which provides a coherent way to think about voter preferences for redistribution postulates that with neither of the groups commanding a majority, government formation and thus policy formulation is inherently dependent on a coalition of two of the three groups. In such a scenario, the middle income or median voter, by aligning with either the poor or the rich, ends up playing a crucial role in determining the direction of public policy. Thus, with the median voter casting the deciding ballot and playing a pivotal role in government formation, political formulations will ultimately cater to his needs. Consider for example an income distribution, skewed to the right, where mean income is higher than the median income (graph 1 shows the scenario in India). In such a scenario, the median voter will be more favourably inclined towards redistributive policies as he stands to gain from them.

Lupu and Pontusson (2011) however argue that rather than the level of inequality it is the structure of inequality, in other words the relative distance between the groups, that determines the median voter’s preference for redistribution. They argue that middle income voters are more likely to favour redistributive policies if the distance (income gap) between the middle and the poor (measured by lower tail inequality) is small relative to the distance between the middle and the rich (measured by upper tail inequality). However, Corneo and Grüner (2002) argue that a smaller income gap doesn’t necessarily imply greater affinity with the poor and support for redistribution. On the contrary, they hold that greater closeness will lead the middle class to oppose redistributive policies as it will threaten their own position in the status hierarchy.

In order to examine the changing structure of the distribution in India, graph 2 presents

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