Why poor countries rely mostly on redistribution in-kind

We present a model in which the crucial distinction between rich and poor countries is that governments in rich countries have access to a more productive tax collection technology than governments in poor countries. Since the tax collection technology in poor countries is poor, the quality of the public service is low. Therefore many households at the top of the income distribution opt out of the public service. The median voter takes this into consideration and allocates a larger share of the public budget to redistribution in-kind (public service) than to redistribution in cash. (C) 2000 Elsevier Science S.A. All rights reserved. JEL classification: H5; D72.