Inequality, the politics of redistribution and the tax mix

Political economy literature generally predicts a positive relationship between income inequality and redistribution. However, there is no clear empirical evidence supporting such a relationship. By incorporating an informal sector that evades income taxes, we account for the tax-base effect that, along with the political channel, determines the equilibrium redistribution and tax mix. We find a non-monotonic relationship between inequality and redistribution and explore under which conditions an unequal society relies more heavily on indirect taxes to finance redistribution. Ultimately, this paper shows the limitations of the income tax to finance redistribution in developing countries even when taxes are democratically chosen.     

Voting over taxes: the case of tax evasion

This paper studies majority voting on taxes when tax evasion is possible. We characterize the voting equilibrium where the agent with median taxed income is pivotal. Since the ranking of true incomes does not necessarily correspond to the ranking of taxed incomes, the decisive voter can differ from the median income receiver. In this case, we find unconventional patterns of redistribution, e.g., from the middle class to the poor and the rich.     

How much income redistribution? An?explanation based on?vote-buying and?corruption

This paper studies how income tax rates are determined and how they are related to government corruption in the form of fund capture. A?model is presented where rich voters can block redistribution by buying the votes of some poor voters. In equilibrium there is only limited redistribution and income tax rates are a negative function of government corruption. When rich voters can bribe the government, an additional equilibrium with zero taxation is possible. The link between corruption and tax rates is tested using cross country data; the empirical evidence is fully consistent with the predictions of the model.     

Testing the Mill hypothesis of fiscal illusion

According to the “Mill hypothesis”, the tax burden from indirect taxation is underestimated because indirect taxes are less “visible” than direct taxes. We experimentally test the Mill hypothesis and identify tax framing as a cause of fiscal illusion. We find that the tax burden associated with an indirect tax is underestimated, whereas this is not the case with an equivalent direct tax. In a referendum to tax and redistribute tax revenue, fiscal illusion is found to distort democratic decisions and to result in “excessive” redistribution. Yet, voters eventually learn to overcome fiscal illusion.     

The public finance of healthy behavior

Lifestyle can often affect the likelihood an individual will have a future illness. Subsidies often mitigate the consequences of poor lifestyle choices. In this paper we explore tax-subsidy policies that lower the consequences of incurring ill health. We find that a funding mechanism consistent with current US policy lowers the investment in healthy lifestyles by both the wealthy, who pay taxes, and the poor, who receive subsidies. We also explore alternative policy interventions such as investing in research to lessen the impact or probability of the disease.     

Do Rural Migrants Divide Ethnically in the City? Evidence from an Ethnographic Experiment in India

Despite rapid urbanization across the Global South, identity politics within rural‐urban migrant communities remains understudied. Past scholarship is divided over whether village‐based ethnic divisions will erode or deepen within diverse poor migrant populations. I assess these divergent predictions through an ‘ethnographic survey experiment’ (N=4,218) among unique samples of poor migrants in India. Contra conventional expectations, I find intra‐class ethnic divisions are neither uniformly transcended nor entrenched across key arenas of migrant life. Instead, I observe variation consistent with situational theories predicting ethnic divisions will be muted only in contexts triggering a common identity among migrants. I pinpoint urban employers and politicians as these triggers. Poor migrants ignore ethnic divisions when facing these elites, who perceive and treat them in class terms. However, migrants remain divided in direct interactions with each other. These bifurcated findings imply poor migrants may be available for both class‐based and ethnic mobilization in the city.     

Xenophobic Rhetoric and Its Political Effects on Immigrants and Their Co‐Ethnics

Though political scientists generally understand the origins of native‐born reactions to foreigners, less is known about how anti‐immigrant contexts trigger a political response within immigrant groups. I address this question by studying the connection between xenophobic rhetoric and Latino politics. I claim that xenophobic rhetoric raises the salience of ethnic identity and impugns its worth. This identity threat leads high‐identifying group members to engage in political efforts that assert their group's positive value, whereas low identifiers shun political opportunities to bolster their group's devaluation. I test these claims with an experiment embedded in a nationally representative opinion survey of Latino adults. In light of xenophobic rhetoric, I find that relative to low identifiers, high‐identifying Latinos become less politically trusting, more ethnocentric, and increasingly supportive of policies that emphasize ingroup pride. These results clarify xenophobic rhetoric's role in amplifying the influence of ethnic identity on immigrant politics.     

The Externalities of Inequality: Fear of Crime and Preferences for Redistribution in Western Europe

Why is the difference in redistribution preferences between the rich and the poor high in some countries and low in others? In this article, we argue that it has a lot to do with the rich and very little to do with the poor. We contend that while there is a general relative income effect on redistribution preferences, the preferences of the rich are highly dependent on the macrolevel of inequality. The reason for this effect is not related to immediate tax and transfer considerations but to a negative externality of inequality: crime. We will show that the rich in more unequal regions in Western Europe are more supportive of redistribution than the rich in more equal regions because of their concern with crime. In making these distinctions between the poor and the rich, the arguments in this article challenge some influential approaches to the politics of inequality.     

Racial or Spatial Voting? The Effects of Candidate Ethnicity and Ethnic Group Endorsements in Local Elections

With the growth of Latino and Asian American populations, candidates frequently must appeal to diverse electorates. Strategies for doing so include emphasizing candidates’ racial/ethnic identity and securing endorsements from racial/ethnic groups. While many scholars focus on candidates’ racial/ethnic attributes, ethnic group endorsements are understudied. Whether such endorsements induce voters to choose ideologically similar candidates (spatial voting), or choose based on race/ethnicity (racial voting) is unclear. We address this question by examining elections in multiethnic local settings. Using original surveys and exit polls, we create comparable measures of candidate and voter ideology, and examine how race/ethnicity and ideology affect voters’ choices. We also embed experiments that manipulate ethnic group endorsements. We find that ideology influences voters’ choices, but that ethnic group endorsements weaken spatial voting. The latter effect among whites is driven by racial/ethnic stereotypes. These reactions explain why some candidates seek such endorsements and why others might prefer to avoid them.     

Federal tax reform and the financing of state and local governments

Although the Reagan Administration tax reform proposals would reduce federal income tax liabilities for most taxpayers, federal tax reform would also create strong pressures on state and local governments to cut taxes and public services. These pressures would arise primarily because itemizers would no longer be able to deduct state and local taxes in determining their federal income tax liabilities. In New York City and Boston, it is likely that the Administration's tax reform would induce cuts in spending that range from 2.5 to 7.5 percent. While the elimination of state and local tax deductibility may promote allocative efficiency in the provision of local public goods, the cost would be a decline in the degree of redistribution through the state and local public sector, and a reduction in local public services for the poor.     

Democracy as an equilibrium

Observation shows that while democracy is fragile in poor countries, it is impregnable in developed ones. To explain this pattern, I develop a model in which political parties propose redistributions of incomes, observe the result of an election, and decide whether to comply with the outcome or to launch a struggle for dictatorship. Democracy prevails in developed societies because too much is at stake in turning against it. More income can be redistributed in developed than in poor countries without threatening democracy. Limits on redistribution arise endogenously, so that constitutions are not necessary for democracy to endure. A democratic culture characterizes the equilibrium.     

Public protection against misperceived risks: Insights from positive political economy

Citizens often misperceive the nature of risks they face and the impacts of alternative actions on those risks. For example, consumers may underestimate the probability of flood in their area, or they may underestimate the beneficial effect of passive restraints on the likelihood of automobile accident fatality. But recommendations that the government should mandate optimal purchases are often ignored by politicians or rejected in favor of direct public compensation. This paper uses some simple models of public choice to explain why other remedies are used; it explicitly accounts for the fact that the same ignorant consumer whose behavior would have to be constrained are the ones whom the politician must please. In a simple world-of-equals model, such consumer-voters may well favor the alternative devices of implicit mutual insurance and conditional payment. When voters are heterogeneous, the political equilibrium (if one exists) is shown to depend upon the distribution of voters by perceived net benefit of public action and of taxes. Public action may be least feasible exactly when it would do the most good.     

Preferential Policies and the Blurring of Ethnic Boundaries: the Case of Aboriginal Australians in the 1980s

I argue against the commonly held view that ethnically based preferential policies consistently lead to the construction of well-defined boundaries between collectivities. Using a statistical study of Australia as a case, I demonstrate that preferential programs, under certain conditions, may blur the boundaries between groups. This trend is reflected in the growing number of individuals in the early 1980s who chose to claim an Aboriginal identity in Australian states that increasingly recognized indigenous land claims.
In order to account for the sometimes-divergent effect of ethnically based preferential policies on the divisions between ethnic groups, I focus on the key factor of security. I contend that programs that favor dominant ethnic groups tend to increase the feelings of vulnerability among weaker collectivities and encourage inter-group polarization. In contrast, preferential policies for subordinate groups offer reassurances to previously threatened communities and frequently encourage the crossing of ethnic boundaries.     

日本人的国家同一性和对人种、民族的刻板印象探索性的讨论

通过对日本大学生的数据分析,探讨了日本人的国家同一性和对人种、民族的刻板印象的关系。结果表明,对民族的刻板印象和内群体偏爱效应显著。此外,国家同一性和对国民印象的交互作用明显。表明国家同一性强的人,对自己国民的肯定性评价显著高于国家同一性弱的人。需进一步探讨国家同一性概念的定义和测量刻板印象的妥当性。     

Why Overcoming Prejudice is Not Enough: A Rejoinder to Richard Rorty

Abstract

Misrecognition, taken seriously as unjust social subordination, cannot be remedied by eliminating prejudice alone. In this rejoinder to Richard Rorty, it is argued that a politics of recognition and a politics of redistribution can and should be combined. However, an identity politics that displaces redistribution and reifies group differences is deeply flawed. Here, instead, an alternative ‘status’ model of recognition politics is offered that encourages struggles to overcome status subordination and fosters parity of participation. Integrating this politics of recognition with redistribution enables a coherent Left vision that could redress injustices of culture and of political economy simultaneously.     

The political economy of targeting

One of the most widely used method of targeting is to reduce welfare benefits as income rises. Although the need for such targeting is clear enough, it also entails two important difficulties. Firstly, the prospect for the recipients of losing part of their benefits if they were to earn more can be a deterrent to work harder. Secondly, by reducing the number of recipients, targeting reduces the political support for taxation and redistribution. The purpose of this paper is to study the voting equilibrium of the degree of targeting and the level of taxation in an economy where labour supply is variable. The analysis reveals that targeting may be fatal for redistribution even though it rejects strictly less than the richest half of the population, and that it is not possible for a coalition of the extremes to form and reject the middle income group from the welfare system. Moreover, because targeting affects labour supply, we find that Pareto improvements are possible when targeting is either “too low” or “too high”. We also find that voting simultaneously over taxation and targeting is favourable to the poor in the sense that they can converge to their most-preferred policy by successively forming a majority coalition with the rich to increase targeting and with the middle to increase taxation.     

Worldwide experience in sales taxation: Lessons for North America

Worldwide fiscal experience over the past twenty-five years indicates steady expansion in the political and academic constituency for expenditure taxation, including indirect taxes on consumption. Retail levies have emerged as the preferred method of indirect taxation of consumption, as older, pre-retail sales taxes have proven unsuited to modern economic structures. Increasingly, reform of sales taxation has involved a shift to one particular form of tax, the European Community type of value-added tax (VAT). This consumption tax option is again a topic of policy debate in North America, particularly in Canada where a VAT was under active consideration in 1985.This paper sifts through worldwide experience with broad-based sales taxes to identify lessons for tax policy in North America both in the short and longer-run. It indicates that the reputation of such taxes as regressive instruments may have been much exaggerated, and that in any case methods are available, particularly in Canada, for resolving equity issues in sales taxation. The VAT is shown to have marginal economic and administrative advantages over single-stage federal retail taxes in both Canada and the US. However, these advantages are not nearly so significant as in European countries where the VAT was adopted there. Further, sensible debate over the merits and limitations of the VAT in North America will call for much closer scrutiny of the problems unique to this form of tax. Finally, three political issues that were not significant in Europe will likely have an important bearing on any future choices of sales tax instruments, both in the U.S. and in Canada.     

Slackers and Zealots: Civil Service, Policy Discretion, and Bureaucratic Expertise

We investigate how aspects of "civil service" systems of personnel management interact with bureaucratic discretion to create expert bureaucracies populated by policy-motivated agents. We construct a dynamic model in which bureaucrats may invest in (relationship-specific) policy expertise and may or may not be interested in policy choices per se. The legislature makes sequentially rational grants of discretion, which serve as incentives for expertise investment and continued service only for policy-motivated bureaucrats. Bureaucratic policy preferences and the legislature's agency problem vis-à-vis bureaucracies develop endogenously in the model. Bureaucratic expertise can be supported in equilibrium only at a cost of its politicization; "neutral competence" is inconsistent with strategic incentives of bureaucrats. We identify several conditions that support the development of an expert bureaucracy in equilibrium, including security of job tenure and control over policy issues for policy-motivated bureaucrats.     

Ethnic Inequality and the Strength of Ethnic Identities in Sub-Saharan Africa

Ethnic inequality has been argued to have numerous pernicious effects. Among other things, scholars have argued that it breeds political violence, destabilizes democracy, and impedes economic development. While the arguments developed by these literatures implicitly assume that ethnic inequality increases the degree to which individuals identify with their ethnicity, this assumption has yet to be tested empirically at the individual-level. This paper argues and empirically demonstrates that between-ethnic group inequality does strengthen ethnic identities. However, we also find that the magnitude of its effect weakens as inequality within ethnic groups increases. That is, individuals identify most strongly with their ethnic identity when ethnicity is reinforced by economic inequality. Using the Afrobarometer, we provide the first cross-national empirical test of the effect of ethnic inequality on the strength of ethnic identities at the individual-level. Our dataset covers 21 sub-Saharan African countries and 85 ethnic groups. Results strongly support our hypothesis.     

Multiparty spatial competition with probabilistic voting

I develop a general model of multiparty competition in which parties model voters' choices by means of probabilistic choice rules. The model is specified in terms of an issue salience coefficient which varies with the importance voters attach to issues, as opposed to unmeasured nonissue motivations. I show that when the policy salience coefficient is sufficiently low, then both vote-maximizing and rank-maximizing parties have a dominant strategy: to adopt the “most popular platform,” which maximizes voter utilities over the entire electorate. This most popular platform therefore represents a convergent equilibrium when all parties are vote- or rank-maximizing. Numerical estimates suggest that this equilibrium result holds for degrees of issue voting which exceed the parameters behavioral researchers have estimated for various historical elections.