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Does Democracy Inevitably Lead to Aggressive Redistribution? A Family Perspective

Author

Listed:
  • Fan, Simon
  • Pang, Yu
  • Pestieau, Pierre

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

Abstract

This paper explains why democracies marked by inequalities may not experience aggressive redistribution through the lens of parent-child interactions. Parental concerns about the negative impacts of high taxation on their children’s motivation to study and pursue high-paying careers deter the poor majority from harboring an inclination to expropriate the rich. We construct an overlapping generations model in which workers vote on the redistributive policy under majority rule, while considering the incentive costs that the policy imposes on their children. We analyze the stationary Markov perfect equilibrium where the likelihood that a moderate income tax can be credibly enforced increases with the degree of parental altruism. In an extended model where career prospects are jointly determined by study efforts and received educational resources, we provide an analytical and numerical characterization of the conditions under which full redistribution does not materialize in the steady state under both private and public school systems.

Suggested Citation

  • Fan, Simon & Pang, Yu & Pestieau, Pierre, 2024. "Does Democracy Inevitably Lead to Aggressive Redistribution? A Family Perspective," LIDAM Discussion Papers CORE 2024002, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2024002
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    References listed on IDEAS

    as
    1. David De La Croix & Matthias Doepke, 2009. "To Segregate or to Integrate: Education Politics and Democracy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(2), pages 597-628.
    2. Metcalfe, Robert & Burgess, Simon & Proud, Steven, 2019. "Students' effort and educational achievement: Using the timing of the World Cup to vary the value of leisure," Journal of Public Economics, Elsevier, vol. 172(C), pages 111-126.
    3. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    4. Raj Chetty & Nathaniel Hendren & Lawrence F. Katz, 2016. "The Effects of Exposure to Better Neighborhoods on Children: New Evidence from the Moving to Opportunity Experiment," American Economic Review, American Economic Association, vol. 106(4), pages 855-902, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Credible tax policy ; parental altruism ; Markov perfect equilibrium ; education ; majority voting;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality

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