Does Democracy Inevitably Lead to Aggressive Redistribution? A Family Perspective

Simon Fan (), Yu Pang () and Pierre Pestieau ()
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Pierre Pestieau: Université catholique de Louvain, LIDAM/CORE, Belgium

No 2024002, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper explains why democracies marked by inequalities may not experience aggressive redistribution through the lens of parent-child interactions. Parental concerns about the negative impacts of high taxation on their children’s motivation to study and pursue high-paying careers deter the poor majority from harboring an inclination to expropriate the rich. We construct an overlapping generations model in which workers vote on the redistributive policy under majority rule, while considering the incentive costs that the policy imposes on their children. We analyze the stationary Markov perfect equilibrium where the likelihood that a moderate income tax can be credibly enforced increases with the degree of parental altruism. In an extended model where career prospects are jointly determined by study efforts and received educational resources, we provide an analytical and numerical characterization of the conditions under which full redistribution does not materialize in the steady state under both private and public school systems.

Keywords: Credible tax policy; parental altruism; Markov perfect equilibrium; education; majority voting (search for similar items in EconPapers)
JEL-codes: D72 H31 I24 (search for similar items in EconPapers)
Pages: 33
Date: 2024-01-18
New Economics Papers: this item is included in nep-cdm, nep-dge and nep-pbe
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