Redistributive Politics under Ambiguity

Javier D. Donna
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Javier D. Donna: University of Florida

No 295, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: The conflicting views that agents and voters have about redistributive taxation have been broadly studied. The literature has focused on situations where the counterfactual outcomes that would have occurred had other actions been chosen are observable or point identified. I analyze this problem in a context of ambiguity. The extent to which individuals are responsible for their own fate is partially identified. Agents have partial knowledge of the relative importance of effort in the generation of income inequality and, therefore, the magnitude of the incentive costs. I present a simple model of redistribution and show that multiple equilibria might arise even in the presence of ambiguity: One where the rate of redistribution is high, agents are pessimistic, and exert low effort (Pessimism/Welfare State), and another where the redistribution tax rate is low, agents are optimistic, and exert high effort (Optimism/Laissez Faire).

Keywords: Redistributive Politics; Taxes; Ambiguity; Beliefs; Effort; Luck; Multiple Equilibria. (search for similar items in EconPapers)
JEL-codes: D80 E62 H10 H30 P16 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2023-12
New Economics Papers: this item is included in nep-mic and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:aoz:wpaper:295

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