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Identity and Redistribution

  • Lindqvist, Erik

    ()

    (Research Institute of Industrial Economics (IFN))

  • Östling, Robert

    ()

    (Institute for International Economic Studies, Stockholm University)

This paper models the interaction between individuals' identity choices and redistribution. Both redistributive policies and identity choices are endogenous, and there might be multiple equilibria. The model is applied to ethnicity and social class. In an equilibrium with high taxes, the poor identify as poor and favor high taxes. In an equilibrium with low taxes, at least some of the poor identify with their ethnic group and favor low taxes. The model has two main predictions. First, redistribution is highest when society is ethnically homogenous, but the effect of ethnic diversity on redistribution is not necessarily monotonic. Second, when income inequality is low, an increase in income inequality might induce the poor to identify with their ethnic group and therefore favor lower taxes.

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File URL: http://swopec.hhs.se/hastef/papers/hastef0659.pdf
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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 659.

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Length: 55 pages
Date of creation: 19 Dec 2006
Date of revision: 12 Jun 2007
Publication status: Forthcoming as Lindqvist, Erik and Robert Östling, 'Identity and Redistribution' in Public Choice.
Handle: RePEc:hhs:hastef:0659
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The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden

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