This paper develops a model of political consensus in order to explain the missing link between inequality and political redistribution. Political consensu s is an implicit agreement not to vote for extreme policy proposals. We show tha t such an agreement may play an efficiency-enhancing role.
Voters anticipate that voting for extremist parties increases policy uncertainty in the future.
We study h ow much inequality can be sustained in a democracy and how the limits to redistr ibution vary with initial inequality. We find that more inequality need not lead to more redistribution. In this case inequalit y is politically self-sustaining. Discussion Paper Serie A with number 591. If you experience problems downloading a file check if you have the proper application to view it first.