Redistributive Politics under Ambiguity

54 Pages Posted: 1 Dec 2023

See all articles by Javier D. Donna

Javier D. Donna

University of Florida; Rimini Centre for Economic Analysis

Date Written: November 22, 2023

Abstract

The conflicting views that agents and voters have about redistributive taxation have been broadly studied. The literature has focused on situations where the counterfactual outcomes that would have occurred had other actions been chosen are observable or point identified. I analyze this problem in a context of ambiguity. The extent to which individuals are responsible for their own fate is partially identified. Agents have partial knowledge of the relative importance of effort in the generation of income inequality and, therefore, the magnitude of the incentive costs. I present a simple model of redistribution and show that multiple equilibria might arise even in the presence of ambiguity: One where the rate of redistribution is high, agents are pessimistic, and exert low effort (Pessimism/Welfare State), and another where the redistribution tax rate is low, agents are optimistic, and exert high effort (Optimism/Laissez Faire).

Keywords: Redistributive Politics, Taxes, Ambiguity, Beliefs, Effort, Luck, Multiple Equilibria

JEL Classification: D80, H10, H30, P16, E62

Suggested Citation

Donna, Javier D., Redistributive Politics under Ambiguity (November 22, 2023). Available at SSRN: https://ssrn.com/abstract=4641648 or http://dx.doi.org/10.2139/ssrn.4641648

Javier D. Donna (Contact Author)

University of Florida ( email )

Gainesville, FL 32606
United States

HOME PAGE: http://www.jdonna.org/

Rimini Centre for Economic Analysis ( email )

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