To get Rich is Glorious, but only if Fairly
20 Pages Posted: 22 Apr 2021 Last revised: 2 May 2021
Date Written: April 21, 2021
The United States witnessed an increase in pre-tax inequality, a rise in the wealth-to-income ratio, and an extraordinary rise in top income inequality in the last four decades. However, income and wealth tax rates did not increase. To explain this, we build a political economy model in which people care about fairness and approve of getting rich due to creating value rather than extracting value from others. Simulations and calibrations show that rational voters can allow for low levels of redistribution even as they observe a sharp increase in inequality.
Keywords: Political Economy; Fairness; Redistribution; Globalization
JEL Classification: H31, O40
Suggested Citation: Suggested Citation