Social Capital Can Lessen Redistribution: A Political Economy Analysis

27 Pages Posted: 1 Nov 2016 Last revised: 5 May 2017

See all articles by Alexei Zakharov

Alexei Zakharov

National Research University Higher School of Economics

Date Written: May 4, 2017

Abstract

We investigate the effect that social capital and social interactions may have on public policy by enabling individuals to observe one another’s incomes, providing them with information about the distribution of income in the economy. Individual incomes are taxed at a flat rate that is determined in a political equilibrium, and tax proceeds are used to procure a public good. The mean income in the economy can take different values, and is unobserved by individuals if social capital is low. We find that, more often than not, the state of the economy will be such that the taxes are going to be higher if social capital is low. Our framework describes a previously unreported relationship between social capital and public policy.

Keywords: social capital, redistribution, inequality

JEL Classification: H41, D72

Suggested Citation

Zakharov, Alexei, Social Capital Can Lessen Redistribution: A Political Economy Analysis (May 4, 2017). Available at SSRN: https://ssrn.com/abstract=2861763 or http://dx.doi.org/10.2139/ssrn.2861763

Alexei Zakharov (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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