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The political economy of inequality, mobility and redistribution

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  • Campomanes, Ignacio P.

Abstract

How does the interaction between inequality and social mobility affect the choice of fiscal policy? I analyze this question in a model of democratic politics with imperfect tax enforcement, where the ability of individuals to evade taxes limits the amount of redistribution in the economy. Social mobility creates an insurance motive that increases voluntary compliance, favoring the tax enforcement process. In such an environment, redistributive pressures brought about by an increase in inequality are only implementable in highly mobile societies. On the contrary, when mobility is low, higher inequality reduces tax rates and does not translate into higher redistribution. Descriptive evidence based on a sample of 71 countries for the period 1980–2015 shows correlations among inequality, mobility and redistribution in line with the predictions of the model.

Suggested Citation

  • Campomanes, Ignacio P., 2024. "The political economy of inequality, mobility and redistribution," Journal of Macroeconomics, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:jmacro:v:79:y:2024:i:c:s016407042300085x
    DOI: 10.1016/j.jmacro.2023.103585
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    More about this item

    Keywords

    Inequality; Social mobility; Fiscal policy; Tax evasion;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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