Lognormal (Re)Distribution: A Macrofounded Theory of Inequality

Jon Eguia and Dimitrios Xefteris

University of Cyprus Working Papers in Economics from University of Cyprus Department of Economics

Abstract: We study how political competition over redistribution determines income inequality under two macrofounded premises: a) the income distribution is approximately log-normal before and after any policy intervention; and b) voters' income and turnout rates are positively related. The unique equilibrium features substantial income inequality and less than maximal redistribution, even if the voters' median income is very low. Fitting our model to the US economy, we argue that either the efficiency cost of redistribution is higher than estimates in the literature, or else US's redistributive policies are optimal for an agent richer than the median voter.

Keywords: Income inequality; redistribution; lognormal distribution; macrofoundations (search for similar items in EconPapers)
JEL-codes: D72 E62 H20 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2022-05-25
New Economics Papers: this item is included in nep-mac
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Journal Article: Lognormal (re)distribution: A macrofounded theory of inequality (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ucy:cypeua:04-2022

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