The Political Economy of Inequality, Mobility and Redistribution

Ignacio Campomanes

No 05/2020, NCID Working Papers from Navarra Center for International Development, University of Navarra

Abstract: How does the interaction between inequality and social mobility affect the choice of fiscal policy? I analyze this question in a model of democratic politics with imperfect tax enforcement, where the ability of individuals to evade taxes limits the amount of redistribution in the economy. Social mobility creates an insurance motive that increases voluntary compliance, favoring the tax enforcement process. In such an environment, redistributive pressures brought about by an increase in inequality are only implementable in highly mobile societies. On the contrary, when mobility is low, higher inequality reduces tax rates and does not translate into higher redistribution. I empirically analyze the predictions of the model for a sample of 72 countries during the period 1960-2015. Using cross-sectional as well as panel estimation techniques, the results point to a positive relation between market inequality and the level of redistribution only when social mobility is relatively high.

Keywords: Inequality; Social Mobility; Fiscal Policy; Tax Evasion. (search for similar items in EconPapers)
JEL-codes: D31 E62 H26 J62 P16 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2020-09
New Economics Papers: this item is included in nep-iue, nep-mac, nep-pbe and nep-pol
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Citations: View citations in EconPapers (2)

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