Political Activism and the Provision of Dynamic Incentives: Growing the Pie in the Battle for Redistribution

Antoine Camous and Russell Cooper

The Economic Journal, 2021, vol. 131, issue 639, 2824-2855

Abstract: This paper studies the determination of income taxes in a dynamic setting with human capital accumulation. The goal is to understand the factors that support an outcome without complete redistribution, given a majority of relatively poor agents and the inability to commit to future taxes. All agents agree ex ante that limiting tax and transfers is beneficial but a majority favours large redistribution, ex post, at the time of the vote. In a political influence game, group activism limits the support for expropriatory taxation and preserves incentives. In some cases, the outcome corresponds to the optimal allocation under commitment.

Date: 2021
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