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Redistributive Taxation With Endogenous Sentiments

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  • Joan Esteban

    ()
    (Institut d'Analisi Economica, CSIC, and Universitat Pompeu Fabra)

  • Laurence Kranich

    ()
    (University at Albany, SUNY)

Abstract

. We present a model in which an individual's sentiments toward 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, and a second involving social stratification on the basis of productivity 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 Instituto de Estudios Fiscales in its series Working Papers with number 33-02 Classification-JEL : : D63, D64..

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Handle: RePEc:hpe:wpaper:y:2002:i:33

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  1. Piketty, Thomas, 1995. "Social Mobility and Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 551-84, August.
  2. Benabou, R. & Ok, E.A., 1998. "Social Mobility and the Demand for Redistribution: The POUM Hypothesis," Working Papers 98-23, C.V. Starr Center for Applied Economics, New York University.
  3. Nalbantian, Haig & Schotter, Andrew, 1994. "Productivity Under Group Incentives: An Experimental Study," Working Papers 94-04, C.V. Starr Center for Applied Economics, New York University.
  4. Kandel, E. & Lazear, E.P., 1990. "Peer Pressure and Partnerships," Papers 90-07, Rochester, Business - Managerial Economics Research Center.
  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. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
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Cited by:
  1. Roland Bénabou & Jean Tirole, 2006. "Belief in a Just World and Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 699-746, May.
  2. Joan Esteban & Laurence Kranich, 2003. "The Social Contracts with Endogenous Sentiments," Working Papers 71, Barcelona Graduate School of Economics.
  3. Robin Boadway & Nicolas Marceau & Steeve Mongrain, 2006. "Redistributive Taxation Under Ethical Behaviour," Cahiers de recherche 0604, CIRPEE.
  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. Alejandro Lugon Ceruti, 2012. "Endogenous Altruism In The Long Run," Documentos de Trabajo 2012-348, Departamento de Economía - Pontificia Universidad Católica del Perú.
  6. Joan Esteban & Laurence Kranich, 2003. "A Theory of Endogenous Sentiments," Working Papers 102, Barcelona Graduate School of Economics.
  7. Gabrieli, Tommaso, 2007. "Beliefs and Redistributive Politics under Incomplete Information," The Warwick Economics Research Paper Series (TWERPS) 821, University of Warwick, Department of Economics.
  8. 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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