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Redistributive Taxation with Endogenous Sentiments

Author

Listed:
  • Joan Esteban
  • Laurence Kranich

Abstract

To help explain differences between the US and EU "social contracts" as well as other cultural differences, we present a model of rational voting over redistribution where individual attitudes toward others are endogenously determined. Individuals differ in their productivities and their degree of social concern, and their behavior is influenced by moral standards. According to these, agents determine what they take to be proper behavior, here identified with the average labor supply, and they judge others accordingly. They increase their esteem for those who perform in excess of the norm and decrease their esteem for those who work less. This pertains to their self-esteem as well, which varies in relation to their own performance. Attitudes toward others influence the desired extent of redistribution. There are multiple politico-economic equilibria. In one equilibrium all individuals conform to proper behavior, their esteem for others is not biased towards any particular type, and the majority vote for high redistribution. In the other equilibrium, highly skilled workers work above the mean and are admired by everyone, while unskilled workers are considered lazy. Here, the majoritarian vote supports low redistribution. We contrast the US and EU social contracts in light of the predictions of the model.
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Suggested Citation

  • Joan Esteban & Laurence Kranich, 2003. "Redistributive Taxation with Endogenous Sentiments," Levine's Working Paper Archive 666156000000000007, David K. Levine.
    • Handle: RePEc:cla:levarc:666156000000000007
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    Cited by:

    1. Laurence Kranich & Matteo Cervellati & Joan Esteban, 2006. "The Social Contract with Endogenous Sentiments," Discussion Papers 06-06, University at Albany, SUNY, Department of Economics.
    2. Platteau, Jean-Philippe & Seki, Erika, 2007. "Heterogeneity, social esteem and feasibility of collective action," Journal of Development Economics, Elsevier, vol. 83(2), pages 302-325, July.
    3. Gabrieli, Tommaso, "undated". "Beliefs And Redistributive Politics Under Incomplete Information," Economic Research Papers 269770, University of Warwick - Department of Economics.
    4. Alejandro Lugon Ceruti, 2012. "Endogenous Altruism In The Long Run," Documentos de Trabajo / Working Papers 2012-348, Departamento de Economía - Pontificia Universidad Católica del Perú.
    5. Roland Bénabou & Jean Tirole, 2006. "Belief in a Just World and Redistributive Politics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(2), pages 699-746.
    6. Paola Profeta, 2007. "Political support and tax reforms with an application to Italy," Public Choice, Springer, vol. 131(1), pages 141-155, April.
    7. Laurence Kranich & Joan Esteban, 2002. "A Theory of Endogenous Sentiments," Discussion Papers 02-11, University at Albany, SUNY, Department of Economics.
    8. Erik Alencar de Figueiredo, 2012. "Fairness and Redistribution- the Case of Latin American Countries," Série Textos para Discussão (Working Papers) 3, Programa de Pós-Graduação em Economia - PPGE, Universidade Federal da Paraíba.
    9. Robin Boadway & Nicolas Marceau & Steeve Mongrain, 2007. "Redistributive Taxation under Ethical Behaviour," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 505-529, September.

    More about this item

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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