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Unequal Societies: Income Distribution and the Social Contract

Roland Benabou ()

American Economic Review, 2000, vol. 90, issue 1, 96-129

Abstract: This paper develops a theory of inequality and the social contract aiming to explain how countries with similar economic and political "fundamentals" can sustain such different systems of social insurance, fiscal redistribution, and education finance as those, of the United States and Western Europe. With imperfect credit and insurance markets some redistributive policies can improve ex ante welfare, and this implies that their political support tends to decrease with inequality. Conversely, with credit constraints, lower redistribution translates into more persistent inequality; hence the potential for multiple steady states, with mutually reinforcing high inequality and low redistribution, or vice versa.

JEL-codes: D31 P16 I22 E62 (search for similar items in EconPapers)
Date: 2000
Note: DOI: 10.1257/aer.90.1.96
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