Working Paper: CEPR ID: DP18638
Authors: Christian Ghiglino; Andreas Müller
Abstract: We provide a politico-economic theory of income redistribution with endogenous social identity of voters. Our analysis uncovers a non-monotonic relationship between market income inequality and redistributive taxation in line with the mixed evidence on the sign of their empirical relationship: taxation first increases with wage inequality as all voters identify with others, but then drops sharply as affluent voters switch to identify in-group. We further add ethnicity as an identification attribute. Consistent with existing empirical evidence, our model predicts that the presence of ethnic minorities and across ethnic group inequality reduce redistribution, while within ethnic group wage inequality increases it.
Keywords: social identity; tax rate; redistribution; inequality; ethnicity; social class; probabilistic voting
JEL Codes: D64; D71; D72; H20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market income inequality (D31) | redistributive taxation (H23) |
| redistributive taxation (H23) | support for redistribution (H23) |
| income inequality (D31) | support for redistribution (H23) |
| income inequality (D31) | identification with ingroup (D70) |
| identification with ingroup (D70) | support for redistribution (H23) |
| presence of ethnic minorities (J15) | support for redistribution (H23) |
| presence of ethnic minorities (J15) | identification with ingroup (D70) |
| income inequality (D31) | ethnic divisions (J15) |