BARGAINING OVER TAXES AND ENTITLEMENTS IN THE ERA OF UNEQUAL GROWTH

Marina Azzimonti, Laura Karpuska and Gabriel Mihalache

International Economic Review, 2023, vol. 64, issue 3, 893-941

Abstract: Entitlements have become an increasing component of total government spending in the United States over the last six decades. Using a political‐economy model where parties bargain over taxes and entitlements, we argue that such dynamics can be explained by two factors: “unequal growth,” where top earners became richer while the income of the bottom 50% stagnated, and budget rules that provide bargaining power to low‐income earners through a “status quo effect.” In a model calibrated to the United States, we show that sustained bargaining power by a party representing the poor results in a rising share of entitlements consistent with the data.

Date: 2023
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https://doi.org/10.1111/iere.12625

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Working Paper: Bargaining over Taxes and Entitlements in the Era of Unequal Growth (2022)
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