Redistributive Taxation With Endogenous Sentiments
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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Bibliographic InfoPaper provided by Instituto de Estudios Fiscales in its series Working Papers with number 33-02 Classification-JEL : : D63, D64..
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Other versions of this item:
- Laurence Kranich & Joan Esteban, 2002. "Redistributive Taxation with Endogenous Sentiments," Discussion Papers 02-12, University at Albany, SUNY, Department of Economics.
- Joan Esteban & Laurence Kranich, 2003. "Redistributive Taxation with Endogenous Sentiments," Levine's Working Paper Archive 666156000000000007, David K. Levine.
- D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy
- Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Social and Economic Stratification
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
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