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Beliefs and Redistributive Politics under Incomplete Information

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  • Gabrieli, Tommaso

    (Department of Economics, University of Warwick)

Abstract

The reason why the social contract is so different in two otherwise comparable societies like the United States and continental Western European countries represents a challenging question. Large empirical evidence shows that the difference in the political support for redistribution appears to reflect a difference in the social perceptions regarding the determinants of individual wealth and the underlying sources of income inequality. I present a model of beliefs and redistribution which explains this evidence through multiple politico-economic equilibria. Differently fromthe recent literaturewhich obtains multiple equilibria by modeling agents characterized by psychological biases, my model is based on standard assumptions. Multiple equilibria originate frommultiple optimal levels of information for the society. Multiple optimal levels of information exist because increasing the informativeness of an economy produces a trade-off between a decrease in adverse selection and an increase in moral hazard. The framework allows the analysis of various comparative statics in order to answer to policy questions.

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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 821.

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Length: 36 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:wrk:warwec:821

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Keywords: Politico-Economic Equilibria ; Redistribution ; Incomplete Information;

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  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. Alberto Alesina & George-Marios Angeletos, 2004. "Fairness and Redistribution," Levine's Bibliography 122247000000000283, UCLA Department of Economics.
  3. Joan Esteban & Laurence Kranich, 2003. "Redistributive Taxation with Endogenous Sentiments," Levine's Working Paper Archive 666156000000000007, David K. Levine.
  4. Matteo Cervellati & Joan Mª Esteban & Laurence Kranich, 2005. "Redistributive Taxation with Endogenous Sentiments," Working Papers 254, Barcelona Graduate School of Economics.
  5. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
  6. 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.
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