Fairness and Redistribution: U.S. Versus Europe

38 Pages Posted: 7 Oct 2009 Last revised: 28 Dec 2011

See all articles by Alberto F. Alesina

Alberto F. Alesina

Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

George-Marios Angeletos

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: February 2003

Abstract

Different beliefs about how fair social competition is and what determines income inequality, influence the redistributive policy chosen democratically in a society. But the composition of income in the first place depends on equilibrium tax policies. If a society believes that individual effort determines income, and that all have a right to enjoy the fruits of their effort, it will chose low redistribution and low taxes. In equilibrium effort will be high, the role of luck limited, market outcomes will be quite fair, and social beliefs will be self-fulfilled. If instead a society believes that luck, birth, connections and/or corruption determine wealth, it will tax a lot, thus distorting allocations and making these beliefs self-sustained as well. We show how this interaction between social beliefs and welfare policies may lead to multiple equilibria or multiple steady states. We argue that this model can contribute to explain US vis a vis continental European perceptions about income inequality and choices of redistributive policies.

Suggested Citation

Alesina, Alberto F. and Angeletos, George-Marios, Fairness and Redistribution: U.S. Versus Europe (February 2003). NBER Working Paper No. w9502. Available at SSRN: https://ssrn.com/abstract=1484509

Alberto F. Alesina (Contact Author)

Harvard University - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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George-Marios Angeletos

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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