Aspects of Income Inequality in a Creative Region

Amitrajeet Batabyal

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze a stylized creative region’s economy. There are two goods (consumption and creative capital) and creative class members differ in their income generating abilities. The distribution of abilities in the creative class population is such that the median ability is less than the average ability. There is a proportional income tax rate and all tax revenues are redistributed to the creative class members by the regional authority (RA) with a uniform, lump-sum transfer. In this setting, we perform four tasks. First, we determine the tax rate that maximizes the lump-sum transfer. Second, we show that income equality requires the tax rate to equal unity and that the poorest creative class member is better off with a lower tax rate and hence more inequality. Third, given the ith creative class member’s preference over the tax rate and the transfer, we ascertain the tax rate that will be chosen by majority voting. Finally, we discuss the connection between increasing inequality and the majority chosen tax rate.

Keywords: Consumption; Creative Capital; Creative Class; Income Inequality; Proportional Tax (search for similar items in EconPapers)
JEL-codes: D63 H71 R11 (search for similar items in EconPapers)
Date: 2020-09-10, Revised 2021-03-15
New Economics Papers: this item is included in nep-geo
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Related works:
Journal Article: Aspects of income inequality in a creative region (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:107488

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