Voting Over Redistributive Policy & the Joneses

In this paper, we augment the classic Meltzer and Richard (1981) framework to incorporate agents who care about keeping up with the Joneses, i.e., they care not just about their own consumption but also how it compares relative to a benchmark (assumed here to the cross-sectional mean level of consumption). When keeping up concerns are operative, an additional effect, over and above the usual Meltzer Richard trade-offs, emerges: an increase in the tax rate reduces the benchmark mak ing it easier to keep up with the Joneses. The average income agent (who, in the ab sence of keeping-up concerns would vote for a zero tax) finds this last effect attrac tive, and votes for a positive tax rate. The upshot is that individuals at or above the mean who have a selfish reason to vote against redistribution in the Meltzer-Richard model would vote for redistribution in the presence of keeping-up concerns.