The political economy of inequality, mobility and redistribution

Ignacio P. Campomanes

Journal of Macroeconomics, 2024, vol. 79, issue C

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. Descriptive evidence based on a sample of 71 countries for the period 1980–2015 shows correlations among inequality, mobility and redistribution in line with the predictions of the model.

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)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:79:y:2024:i:c:s016407042300085x

DOI: 10.1016/j.jmacro.2023.103585

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