Eating the Rich vs. Feeding the Poor: Borrowing Constraints and the Reluctance to Redistribute
This paper offers an explanation why most democracies are characterized by moderate taxation of wealth although the wealth distribution is persistently skewed to the right. We model an economy in which agents have to acquire higher education to qualify for skilled work and in which capital market imperfections prevent poor individuals from making such a profitable human capital investment. If these borrowing constraints do not bind for members of the middle class, they may rationally reject redistribution although both the current and the future median of the wealth distribution are below the mean. Copyright 2003 by Kluwer Academic Publishers
Volume (Year): 116 (2003)
Issue (Month): 3-4 (September)
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