Regulation to redistribute well-being: political incentives in poor countries

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.