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Redistributive Taxation with Endogenous Sentiments

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  • Joan Esteban
  • Laurence Kranich

Abstract

We present a model in which an individual's sentiments towards others are determined endogenously on the basis of how they perform relative to the societal average. This, in turn, affects the individual's own behavior and hence other agents' sentiments toward her. We focus on stationary patterns of utility interdependence. To demonstrate the effects of such endogeneity, we consider an example of a production economy with redistributive taxation. There are two types of stationary equilibria: one in which all agents conform to the societal norm, into two or three groups. The main conclusion is that the tax structure, in that it affects behavior which in turn affects sentiments, plays a crucial role in determining which type of equilibrium occurs and its characteristics as well as the extent of altruism and social cohesion in society.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 666156000000000007.

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Date of creation: 06 May 2003
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Handle: RePEc:cla:levarc:666156000000000007

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  1. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
  2. Roland Bénabou & Efe A. Ok, 2001. "Social Mobility And The Demand For Redistribution: The Poum Hypothesis," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 447-487, May.
  3. Piketty, Thomas, 1995. "Social Mobility and Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 551-84, August.
  4. Nalbantian, Haig R & Schotter, Andrew, 1997. "Productivity under Group Incentives: An Experimental Study," American Economic Review, American Economic Association, vol. 87(3), pages 314-41, June.
  5. Alberto Alesina & Edward Glaeser & Bruce Sacerdote, 2001. "Why Doesn't the United States Have a European-Style Welfare State?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2), pages 187-278.
  6. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-17, August.
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Cited by:
  1. Joan Esteban & Laurence Kranich, 2003. "A Theory of Endogenous Sentiments," Working Papers 102, Barcelona Graduate School of Economics.
  2. Matteo Cervellati & Joan Esteban & Laurence Kranich, 2007. "The Social Contract with Endogenous Sentiments," UFAE and IAE Working Papers 702.07, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  3. Alejandro Lugon Ceruti, 2012. "Endogenous Altruism In The Long Run," Documentos de Trabajo 2012-348, Departamento de Economía - Pontificia Universidad Católica del Perú.
  4. Paola Profeta, 2007. "Political support and tax reforms with an application to Italy," Public Choice, Springer, vol. 131(1), pages 141-155, April.
  5. Roland Benabou & Jean Tirole, 2005. "Belief in a Just World and Redistributive Politics," NBER Working Papers 11208, National Bureau of Economic Research, Inc.
  6. Robin Boadway & Nicolas Marceau & Steeve Mongrain, 2007. "Redistributive Taxation under Ethical Behaviour," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 505-529, 09.
  7. 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.
  8. Gabrieli, Tommaso, 2007. "Beliefs and Redistributive Politics under Incomplete Information," The Warwick Economics Research Paper Series (TWERPS) 821, University of Warwick, Department of Economics.

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