Interregional Inequality and Robin Hood Politics
AbstractThis paper studies the implications of interregional redistributive taxation on interregional and interpersonal inequality and on social welfare. We introduce a model of two regions, where individuals are differentiated by their ability and opportunity, the former being determined by heritage and the latter by their residence. Moreover, agents are immobile and respond to interregional transfers by adjusting their labour supply, rather than by re-locating. The analysis shows, firstly, that increases in the rate of interregional redistribution need not generate neither reduced interregional inequality nor higher social welfare, and secondly, that their effects are highly dependent on the initial state of the economy. In particular, interregional redistribution seems most likely to be beneficial in terms of interregional and interpersonal equity as well as social welfare in low-tax economies, where the degree of income dispersion is high between, but not within regions.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 523.
Length: 24 pages
Date of creation: 14 Mar 2003
Date of revision:
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interregional redistribution; welfare; inequality;
Find related papers by JEL classification:
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
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