IDEAS home Printed from https://ideas.repec.org/a/eee/eecrev/v170y2024ics0014292124001922.html
   My bibliography  Save this article

Lognormal (re)distribution: A macrofounded theory of inequality

Author

Listed:
  • Eguia, Jon X.
  • Xefteris, Dimitrios

Abstract

We study how political competition over redistribution determines income inequality under one macrofounded premise: the income distribution is approximately log-normal before and after any policy intervention. The unique equilibrium features substantial income inequality and less than maximal redistribution, even if the voters’ median income is very low. Fitting our model to the US economy, we argue that either the efficiency cost of redistribution is higher than estimates in the literature, or else US’s redistributive policies are optimal for an agent richer than the median voter.

Suggested Citation

  • Eguia, Jon X. & Xefteris, Dimitrios, 2024. "Lognormal (re)distribution: A macrofounded theory of inequality," European Economic Review, Elsevier, vol. 170(C).
    • Handle: RePEc:eee:eecrev:v:170:y:2024:i:c:s0014292124001922
    DOI: 10.1016/j.euroecorev.2024.104863
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0014292124001922
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.euroecorev.2024.104863?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Campante, Filipe R., 2011. "Redistribution in a model of voting and campaign contributions," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 646-656, August.
    2. Xavier Gabaix & Jean‐Michel Lasry & Pierre‐Louis Lions & Benjamin Moll, 2016. "The Dynamics of Inequality," Econometrica, Econometric Society, vol. 84, pages 2071-2111, November.
    3. Mark Aguiar & Mark Bils, 2015. "Has Consumption Inequality Mirrored Income Inequality?," American Economic Review, American Economic Association, vol. 105(9), pages 2725-2756, September.
    4. Loukas Karabarbounis, 2011. "One Dollar, One Vote," Economic Journal, Royal Economic Society, vol. 121(553), pages 621-651, June.
    5. Yoshitaka Itsumi, 1974. "Distributional Effects of Linear Income Tax Schedules," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(3), pages 371-381.
    6. David Card, 2009. "Immigration and Inequality," American Economic Review, American Economic Association, vol. 99(2), pages 1-21, May.
    7. Erich Battistin & Richard Blundell & Arthur Lewbel, 2009. "Why Is Consumption More Log Normal than Income? Gibrat's Law Revisited," Journal of Political Economy, University of Chicago Press, vol. 117(6), pages 1140-1154, December.
    8. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2017. "Optimal Tax Progressivity: An Analytical Framework," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(4), pages 1693-1754.
    9. Jeremy Greenwood & Nezih Guner & Georgi Kocharkov & Cezar Santos, 2014. "Marry Your Like: Assortative Mating and Income Inequality," American Economic Review, American Economic Association, vol. 104(5), pages 348-353, May.
    10. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality in the United States, 1913–1998," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 1-41.
    11. Lockwood, Benjamin B. & Weinzierl, Matthew, 2016. "Positive and normative judgments implicit in U.S. tax policy, and the costs of unequal growth and recessions," Journal of Monetary Economics, Elsevier, vol. 77(C), pages 30-47.
    12. Hendren, Nathaniel, 2020. "Measuring economic efficiency using inverse-optimum weights," Journal of Public Economics, Elsevier, vol. 187(C).
    13. Benjamin Moll & Lukasz Rachel & Pascual Restrepo, 2022. "Uneven Growth: Automation's Impact on Income and Wealth Inequality," Econometrica, Econometric Society, vol. 90(6), pages 2645-2683, November.
    14. Romer, Thomas, 1975. "Individual welfare, majority voting, and the properties of a linear income tax," Journal of Public Economics, Elsevier, vol. 4(2), pages 163-185, February.
    15. Michael V. Alexeev & Clifford G. Gaddy, 1993. "INCOME DISTRIBUTION IN THE U.S.S.R. IN THE 1980s," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 39(1), pages 23-36, March.
    16. Cowell, Frank, 2011. "Measuring Inequality," OUP Catalogue, Oxford University Press, edition 3, number 9780199594047.
    17. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65(2), pages 135-135.
    18. Philip Armour & Richard V. Burkhauser & Jeff Larrimore, 2016. "Using The Pareto Distribution To Improve Estimates Of Topcoded Earnings," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1263-1273, April.
    19. Valentino Larcinese, 2007. "Voting over Redistribution and the Size of the Welfare State: The Role of Turnout," Political Studies, Political Studies Association, vol. 55(3), pages 568-585, October.
    20. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
    21. Kimuli Kasara & Pavithra Suryanarayan, 2015. "When Do the Rich Vote Less Than the Poor and Why? Explaining Turnout Inequality across the World," American Journal of Political Science, John Wiley & Sons, vol. 59(3), pages 613-627, July.
    22. Congressional Budget Office, 2021. "The Distribution of Household Income, 2018," Reports 57061, Congressional Budget Office.
    23. Browning, Edgar K & Johnson, William R, 1984. "The Trade-Off between Equality and Efficiency," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 175-203, April.
    24. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
    25. Ballard, Charles L, 1988. "The Marginal Efficiency Cost of Redistribution," American Economic Review, American Economic Association, vol. 78(5), pages 1019-1033, December.
    26. Husted, Thomas A & Kenny, Lawrence W, 1997. "The Effect of the Expansion of the Voting Franchise on the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 54-82, February.
    27. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(1), pages 205-229.
    28. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December.
    29. Jon X. Eguia & Dimitrios Xefteris, 2021. "Implementation by Vote-Buying Mechanisms," American Economic Review, American Economic Association, vol. 111(9), pages 2811-2828, September.
    30. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
    31. Campante, Filipe Robin, 2011. "Redistribution in a model of voting and campaign contributions," Scholarly Articles 34310047, Harvard Kennedy School of Government.
    32. Benjamin B. Lockwood & Charles G. Nathanson & E. Glen Weyl, 2017. "Taxation and the Allocation of Talent," Journal of Political Economy, University of Chicago Press, vol. 125(5), pages 1635-1682.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jon Eguia & Dimitrios Xefteris, 2022. "Lognormal (Re)Distribution: A Macrofounded Theory of Inequality," University of Cyprus Working Papers in Economics 04-2022, University of Cyprus Department of Economics.
    2. Marcus Berliant & Pierre C. Boyer, 2024. "Politics and income taxes: Progress and progressivity," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 26(4), August.
    3. Jo Thori Lind & Dominic Rohner, 2017. "Knowledge is Power: A Theory of Information, Income and Welfare Spending," Economica, London School of Economics and Political Science, vol. 84(336), pages 611-646, October.
    4. Micael Castanheira & Gaëtan Nicodème & Paola Profeta, 2012. "On the political economics of tax reforms: survey and empirical assessment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(4), pages 598-624, August.
    5. George Tridimas & Stanley L. Winer, 2004. "A Contribution to the Political Economy of Government Size: 'Demand', 'Supply' and 'Political Influence'," Carleton Economic Papers 04-04, Carleton University, Department of Economics.
    6. Jacobs, Bas & Jongen, Egbert L.W. & Zoutman, Floris T., 2017. "Revealed social preferences of Dutch political parties," Journal of Public Economics, Elsevier, vol. 156(C), pages 81-100.
    7. Persson, Torsten & Tabellini, Guido, 2002. "Political economics and public finance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 24, pages 1549-1659, Elsevier.
    8. Valentino Larcinese, 2007. "Voting over Redistribution and the Size of the Welfare State: The Role of Turnout," Political Studies, Political Studies Association, vol. 55(3), pages 568-585, October.
    9. Navid Sabet, 2023. "Turning out for redistribution: the effect of voter turnout on top marginal tax rates," Public Choice, Springer, vol. 194(3), pages 347-367, March.
    10. Antràs, Pol & de Gortari, Alonso & Itskhoki, Oleg, 2017. "Globalization, inequality and welfare," Journal of International Economics, Elsevier, vol. 108(C), pages 387-412.
    11. Campante, Filipe R., 2011. "Redistribution in a model of voting and campaign contributions," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 646-656, August.
    12. Brett, Craig & Weymark, John A., 2017. "Voting over selfishly optimal nonlinear income tax schedules," Games and Economic Behavior, Elsevier, vol. 101(C), pages 172-188.
    13. Paul Hufe & Andreas Peichl, 2020. "Beyond Equal Rights: Equality of Opportunity in Political Participation," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(3), pages 477-511, September.
    14. Agranov, Marina & Palfrey, Thomas R., 2015. "Equilibrium tax rates and income redistribution: A laboratory study," Journal of Public Economics, Elsevier, vol. 130(C), pages 45-58.
    15. Felix J. Bierbrauer & Pierre C. Boyer & Andreas Peichl, 2021. "Politically Feasible Reforms of Nonlinear Tax Systems," American Economic Review, American Economic Association, vol. 111(1), pages 153-191, January.
    16. Carbonell-Nicolau Oriol, 2009. "A Positive Theory of Income Taxation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-49, July.
    17. Bo Hyun Chang & Yongsung Chang & Sun-Bin Kim, 2018. "Pareto Weights in Practice: A Quantitative Analysis of 32 OECD Countries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 181-204, April.
    18. Felix Bierbrauer & Aleh Tsyvinski & Nicolas D. Werquin, 2017. "Taxes and Turnout," NBER Working Papers 24123, National Bureau of Economic Research, Inc.
    19. Bo Hyun Chang & Yongsung Chang & Sun-Bin Kim, 2016. "Pareto Weights in Practice: A Quantitative Analysis Across 32 OECD Countries," Working papers 2016rwp-92, Yonsei University, Yonsei Economics Research Institute.
    20. Louis Kaplow, 2024. "Optimal Income Taxation," Journal of Economic Literature, American Economic Association, vol. 62(2), pages 637-738, June.

    More about this item

    Keywords

    Income inequality; Redistribution; Lognormal distribution; Macrofoundations;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:170:y:2024:i:c:s0014292124001922. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eer .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.