Working Paper: CEPR ID: DP11446
Authors: Timothy J. Besley
Abstract: In standard approaches to the political economy of inequality, the income distribution and the preferences of households are taken as fixed when studying how incomes are determined within and between nations. This paper makes the income distribution endogenous bysupposing that aspirational parents can socialize children into having aspirational preferences which are modeled as a reference point in income space. The model looks at the endogenous determination of the level of income, income inequality and income redistribution where the proportion of aspirational individuals evolves endogenously according to payoffs along the equilibrium path. The paper discusses implications of the model for intergenerational mobility. It also shows how the income generation process is critical for the dynamics and welfare conclusions. Finally, it looks at some evidence from the World Values Survey in light of the theory.
Keywords: aspirations; political economy; inequality; intergenerational mobility
JEL Codes: A13; D11; D63; I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| aspirational parents (J13) | aspirational preferences (D10) |
| aspirational preferences (D10) | income generation process (E25) |
| income generation process (E25) | income distribution (D31) |
| aspirational preferences (D10) | intergenerational mobility (J62) |
| intergenerational mobility (J62) | income distribution (D31) |
| aspirational preferences (D10) | political economy of redistribution (P35) |
| political economy of redistribution (P35) | societal change (O35) |
| aspirational preferences (D10) | aspirational poverty trap (I32) |