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Unequal Societies: Income Distribution and the Social Contract

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  • Roland Benabou

Abstract

This paper develops a theory of inequality and the social contract aiming to explain how countries with similar economic and political "fundamentals" can sustain such different systems of social insurance, fiscal redistribution, and education finance as those, of the United States and Western Europe. With imperfect credit and insurance markets some redistributive policies can improve ex ante welfare, and this implies that their political support tends to decrease with inequality. Conversely, with credit constraints, lower redistribution translates into more persistent inequality; hence the potential for multiple steady states, with mutually reinforcing high inequality and low redistribution, or vice versa.

Suggested Citation

  • Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
  • Handle: RePEc:aea:aecrev:v:90:y:2000:i:1:p:96-129
    Note: DOI: 10.1257/aer.90.1.96
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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