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Redistributive Taxation with Endogenous Sentiments

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  • Laurence Kranich
  • Joan Esteban

Abstract

In this paper we present a model in which an individual's sentiments toward others are affected by how they behave relative to the societal norm. This, in turn, affects the individual's own behavior and hence other agents' sentiments toward her. We focus on stationary patterns of utility interdependence. To demonstrate the effects of such endogeneity, we consider an example of a production economy with redistributive taxation. There are two types of stationary equilibria: one in which all agents conform to the societal norm, and a second involving social stratification on the basis of productivity into two or three groups. The main conclusion is that the tax structure, in that it affects behavior which in turn affects sentiments, plays a crucial role in determining which type of equilibrium occurs and its characteristics as well as the extent of altruism and social cohesion in society.

Suggested Citation

  • Laurence Kranich & Joan Esteban, 2002. "Redistributive Taxation with Endogenous Sentiments," Discussion Papers 02-12, University at Albany, SUNY, Department of Economics.
    • Handle: RePEc:nya:albaec:02-12
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    Cited by:

    1. Gabrieli, Tommaso, 2007. "Beliefs And Redistributive Politics Under Incomplete Information," Economic Research Papers 269770, University of Warwick - Department of Economics.
    2. Alejandro Lugon Ceruti, 2012. "Endogenous Altruism In The Long Run," Documentos de Trabajo / Working Papers 2012-348, Departamento de Economía - Pontificia Universidad Católica del Perú.
    3. Roland Bénabou & Jean Tirole, 2006. "Belief in a Just World and Redistributive Politics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(2), pages 699-746.
    4. Robin Boadway & Nicolas Marceau & Steeve Mongrain, 2007. "Redistributive Taxation under Ethical Behaviour," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 505-529, September.
    5. Joan Esteban & Laurence Kranich, 2003. "The Social Contracts with Endogenous Sentiments," Working Papers 71, Barcelona School of Economics.
    6. Erik Alencar de Figueiredo, 2012. "Fairness and Redistribution- the Case of Latin American Countries," Série Textos para Discussão (Working Papers) 3, Programa de Pós-Graduação em Economia - PPGE, Universidade Federal da Paraíba.
    7. Laurence Kranich & Joan Esteban, 2002. "A Theory of Endogenous Sentiments," Discussion Papers 02-11, University at Albany, SUNY, Department of Economics.
    8. Platteau, Jean-Philippe & Seki, Erika, 2007. "Heterogeneity, social esteem and feasibility of collective action," Journal of Development Economics, Elsevier, vol. 83(2), pages 302-325, July.
    9. Paola Profeta, 2007. "Political support and tax reforms with an application to Italy," Public Choice, Springer, vol. 131(1), pages 141-155, April.

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    More about this item

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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