Ruhr Economic Papers

Ruhr Economic Papers #213

Imperfect Information and the Meltzer-Richard Hypothesis

by Christian Bredemeier

TU Dortmund, RGS Econ, 10/2010, 32 S./p., 8 Euro, ISBN 978-3-86788-246-0



Despite a strong theoretical prediction that income skewness and redistribution should be positively linked, empirical evidence on this issue is mixed. This paper argues that it is important to distinguish between sources of changes in income skewness. Two sources of such changes are discussed: rising polarization and upward mobility, which both increase income skewness. Under imperfect information, these developments affect redistribution in different ways. While rising polarization increases redistribution, upward mobility can have the opposite effect. Reasonable degrees of informational imperfection are sufficient to generate increasing income skewness and decreasing redistribution in the presence of upward mobility.

JEL-Classification: D72, H24, D83

Keywords: Voting; redistribution; imperfect information