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Research Seminars & Workshops @ IRES


Dr Lee Nai Jia
Department of Real Estate, NUS

Voting and Housing subsidy puzzle - Why are people willing to distribute their wealth?


Date:

8 February 2012, Wednesday

Time:

12.30pm - 2.00pm

Venue:

RMI Executive Seminar Room
21 Heng Mui Keng Terrace, Level 4


Abstract

In the public finance and political E!conomics literature, the classical models (For instance, Romer 1975) that examine how voters evaluate redistributive programs predicts that the size of general redistributive programs reflects the preferences of middle classes (median voters) and is determined by their relative position on income scale. However, in the recent election of in Singapore, we obseJVe an interesting anomaly. Despite having an overwhelmingly large proportion of population are homeowners and high subsidies been provided to low income new households for housing, the government are requested to offer more subsidies to a larger population of new households. This leads to the question of how much governments can offer to maximize their welfare. Although the case of Singapore may seem unique, many Asian cities are becoming more democratic and facing similar housing affordability problems as they become more urbanized. The case of Singapore can provide some interesting insights for Asia cities that are grappling with the political economic problem. My research proposal attempts to examine why this anomaly is obseJVed using a simple median voter model. In the model, the voter will vote for the existing ruling party if they can afford the housing they wants. The base case scenario suggests that more subsidies should be given to more people when income distribution is wide and more measures to reduce house price in the high income housing may swing votes to the government if the majority of the population belongs to middle income households. We further propose the development of several variants of the model and attempt to test the different hypotheses using Singapore as a case study.

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