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Redistributive Taxation with Endogenous Sentiments

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  • Matteo Cervellati
  • Joan Mª Esteban
  • Laurence Kranich

Abstract

To help explain differences between the US and EU "social contracts" as well as other cultural differences, we present a model of rational voting over redistribution where individual attitudes toward others are endogenously determined. Individuals differ in their productivities and their degree of social concern, and their behavior is influenced by moral standards. According to these, agents determine what they take to be proper behavior, here identified with the average labor supply, and they judge others accordingly. They increase their esteem for those who perform in excess of the norm and decrease their esteem for those who work less. This pertains to their self-esteem as well, which varies in relation to their own performance. Attitudes toward others influence the desired extent of redistribution. There are multiple politico-economic equilibria. In one equilibrium all individuals conform to proper behavior, their esteem for others is not biased towards any particular type, and the majority vote for high redistribution. In the other equilibrium, highly skilled workers work above the mean and are admired by everyone, while unskilled workers are considered lazy. Here, the majoritarian vote supports low redistribution. We contrast the US and EU social contracts in light of the predictions of the model.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 254.

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Date of creation: Apr 2005
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Handle: RePEc:bge:wpaper:254

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Related research

Keywords: Social Contraact; Endogenous Sentiments; Social Norms; Redistribution; Inequality; Politico-Economic Equilibrium;

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References

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  1. Earl, P.E., 1990. "Economics And Psychology: A Survey," Papers 1990-04, Tasmania - Department of Economics.
  2. William A. Darity & Arthur H. Goldsmith, 1996. "Social Psychology, Unemployment and Macroeconomics," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 121-140, Winter.
  3. Frey, Bruno S & Jegen, Reto, 2001. " Motivation Crowding Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 15(5), pages 589-611, December.
  4. John M. Evans & Douglas C. Lippoldt & Pascal Marianna, 2001. "Trends in Working Hours in OECD Countries," OECD Labour Market and Social Policy Occasional Papers 45, OECD Publishing.
  5. Kranich, Laurence, 2001. " Altruism and the Political Economy of Income Taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 3(4), pages 455-69.
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Cited by:
  1. Paola Profeta, 2007. "Political support and tax reforms with an application to Italy," Public Choice, Springer, vol. 131(1), pages 141-155, April.
  2. Platteau, Jean-Philippe & Seki, Erika, 2007. "Heterogeneity, social esteem and feasibility of collective action," Journal of Development Economics, Elsevier, vol. 83(2), pages 302-325, July.
  3. Gabrieli, Tommaso, 2007. "Beliefs and Redistributive Politics under Incomplete Information," The Warwick Economics Research Paper Series (TWERPS) 821, University of Warwick, Department of Economics.
  4. Erik Alencar de Figueiredo, 2012. "Fairness and Redistribution- the Case of Latin American Countries," Série Textos para Discussão (Working Papers) 3, Programa de Pós-Graduação em Economia - PPGE, Universidade Federal da Paraíba.

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