Regulation as a Redistributive Policy: A Political Economy Approach

In this thesis, I study the use of regulation as a redistributive policy and its implications on economic and political outcomes. In the first chapter of this thesis, I remark that regulation has distributive and welfare consequences, making it a powerful political tool. I show that when the regulation is on goods for which all of the citizens have similar consumption behaviour, a highly unequal society funds the costs of those goods mostly through general taxation; instead of tariffs charged to users. Importantly, when the poor have access to only the essential goods in the economy, regulation becomes a strong political tool, and it is poverty rather than inequality that determines the use of regulation. In the second chapter, I start with the observation that corporations devote costly efforts to gain access to candidates before elections. These pre-electoral attempts take many forms and commonly result in a welfare loss. Then, I explore the consequences of the access of a monopolistic firm to a candidate on the regulatory policy. I show that when the firm transfers a private interest to a popular candidate, regulation results in gains for both the firm and the candidate; and a welfare loss for the voters. Instead, this welfare loss does not take place when the firm uses campaign contributions as signals to communicate private information. From this perspective, there are benefits in permitting interest groups to fund political campaigns. The third chapter is motivated by the fact that developing countries subsidise the tariffs of public utilities such as electricity or transportation with high costs in terms of the quality and sustainability of the utility provisions. Even when governments repeatedly claim that the main goal of these subsidies is to improve the well-being of the poor, most literature has explained the use of these tools is driven by income inequality rather than the poverty rate. In contrast, I study the effect of the size of the poor on the choice of the mix of regulation and other traditional forms of redistributive policy. I begin by showing that the poor are better characterised by their consumption bundle than their income. Consequently, when the public utilities are essential for the poor, a higher poverty rate leads to a larger amount of subsidies to utilities and a smaller size of income redistribution.