This article studies how distributional tensions can act in many different ways depending on the social affinity between the different economic classes and their prospect of upward or downward mobility. We consider that socioeconomic group membership through its implied social interactions and peer effects is an important determinant of an individual's outcome. Agents, while voting on a social contract, take into account the consequences of their choice over their ex post belonging to a particular community. Thus, the endogenous sorting of the population into clusters may lead to a nonmonotonic relationship between inequality and the pressure for redistributive policies. Copyright 2005 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.
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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
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