On the Distributional Effects of Political Decisionmaking, An Overview and Synthesis of Public Choice Research

This paper provides an overview of public choice models of policy formation in areas that affect the distribution of income and wealth within and among nations. Three broad areas of policy are analyzed: (i) economic liberalization and public education, (ii) corruption and rent seeking, and (iii) the welfare state. Public choice analysis shows how ideology, economics, and institutions affect the distribution of wealth by affecting policy decisions. Policy choices (indirectly) determine rates of return from human and physical capital at the margin, and thereby (indirectly) determines economic growth and the distribution of income. Public economics demonstrates that factor endowments only partially determine differences in income within and among countries, because public policies affect rates of return at the margin. Public choice analysis assumes that neither public policy, nor the distribution of income, is entirely exogenous, but rather are influenced by the interests and choices of government policy makers. A careful analysis of the settings in which policy choices are made implies that the policy preferences of policy makers are, however, partly consequences of institutional and economic interests, partly by the knowledge and ideology of policymakers, and partly by the procedures through which public policies choices are made