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Beliefs and Redistributive Politics under Incomplete Information

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  • Gabrieli, Tommaso

    (Department of Economics, University of Warwick)

Abstract

The reason why the social contract is so different in two otherwise comparable societies like the United States and continental Western European countries represents a challenging question. Large empirical evidence shows that the difference in the political support for redistribution appears to reflect a difference in the social perceptions regarding the determinants of individual wealth and the underlying sources of income inequality. I present a model of beliefs and redistribution which explains this evidence through multiple politico-economic equilibria. Differently fromthe recent literaturewhich obtains multiple equilibria by modeling agents characterized by psychological biases, my model is based on standard assumptions. Multiple equilibria originate frommultiple optimal levels of information for the society. Multiple optimal levels of information exist because increasing the informativeness of an economy produces a trade-off between a decrease in adverse selection and an increase in moral hazard. The framework allows the analysis of various comparative statics in order to answer to policy questions.

Suggested Citation

  • Gabrieli, Tommaso, 2007. "Beliefs and Redistributive Politics under Incomplete Information," The Warwick Economics Research Paper Series (TWERPS) 821, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:821
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    References listed on IDEAS

    as
    1. 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.
    2. Alberto Alesina & George-Marios Angeletos, 2005. "Fairness and Redistribution," American Economic Review, American Economic Association, vol. 95(4), pages 960-980, September.
    3. Alberto Alesina & Edward Glaeser & Bruce Sacerdote, 2001. "Why Doesn't the United States Have a European-Style Welfare State?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2), pages 187-278.
    4. Joan Esteban & Laurence Kranich, "undated". "Redistributive Taxation With Endogenous Sentiments," Working Papers 33-02 Classification-JEL , Instituto de Estudios Fiscales.
    5. 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.
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    Cited by:

    1. Gabrieli, T., 2010. "Diverse societal beliefs and redistributive policies, but equal welfare: The trade-off effect of information," Working Papers 10/04, Department of Economics, City University London.

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    More about this item

    Keywords

    Politico-Economic Equilibria ; Redistribution ; Incomplete Information;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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