Working Paper: CEPR ID: DP998
Authors: Gilles Saint-Paul
Abstract: This paper studies the impact of income inequality on fiscal conservatism when an increase in inequality affects the bottom portion of income distribution. It is argued that, contrary to what is generally assumed in the economic literature, inequality will then be associated with less, rather than more, redistributive taxation. Furthermore, if the poor are liquidity constrained then the positive association between inequality and fiscal conservatism will increase the persistence in the dynamics of income distribution and possibly lead to multiple steady states. The existence, under some conditions, of a dynamic voting equilibrium is shown and some of its properties are studied.
Keywords: political economy; income distribution; human capital; poverty; exclusion; inequality; path dependence
JEL Codes: E62; H2; H3; J24; J62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Income Inequality (D31) | Less Redistributive Taxation (H23) |
| Liquidity Constraints (E41) | Increased Persistence in Income Distribution Dynamics (D39) |
| Income Inequality (D31) | Persistent Underclass (I32) |
| Fiscal Conservatism (E62) | Enhanced Returns on Investments in Human Capital (J24) |
| Liquidity Constraints (E41) | Reduced Investments (G31) |
| Reduced Investments (G31) | Perpetuated Poverty and Conservatism (I32) |
| Economic Shocks (F69) | Transition from Egalitarian to Conservative States (P39) |