Class Altruism and Redistribution

Müller, Andreas, Christian Ghiglino and Juárez-Luna, David
Authors registered in the RePEc Author Service: David Juárez-Luna and Andreas Müller

No 15793, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Why do tax rates vary so much across countries? We study the role of other-regarding preferences and ethnic fragmentation in redistribution. The government of a two-party democracy is elected by altruistic voters and decides on a redistributive income tax. Social identification directs voters' altruism toward specific social groups. We identify three main factors that lead to low levels of redistribution in the political equilibrium: (i) strong in-group altruism of the rich voters---which we refer to as class altruism; (ii) weak universal altruism among all voters---in particular the rich; and (iii) ethnic fragmentation among poor voters. Using survey data, we document evidence on the pattern of altruism in the United States and the European Union and find that our model predictions are consistent with the observed differences in tax rates.

Keywords: altruism; Social identity; Tax rate; Redistribution; Inequality; Ethnic fragmentation; Social classes; Probabilistic voting (search for similar items in EconPapers)
JEL-codes: D64 D71 D72 H20 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-cdm and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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