Social Limits to Redistribution

As shown by Harold Cole et al. (1992), the existence of social-rather than market-competition for some goods can endogenously generate a concern for relative position in the income distribution. In order to highlight the role of social competition we develop a model of redistribution in which neithe...

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Bibliographic Details
Published in:The American economic review 2000-12, Vol.90 (5), p.1491-1507
Main Authors: Corneo, Giacomo, Grüner, Hans Peter
Format: Article
Language:English
Subjects:
Competition
Consumption taxes
Economic models
Economic value
Expected utility
Game theory
Income distribution
Income inequality
Income redistribution
Lobbying
Middle class
Prestige
Shorter Papers
Social inequality
Social research
Studies
Taxation
Taxes
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Summary:As shown by Harold Cole et al. (1992), the existence of social-rather than market-competition for some goods can endogenously generate a concern for relative position in the income distribution. In order to highlight the role of social competition we develop a model of redistribution in which neither incentive costs of taxation nor lobbying activities of high-income groups are present. Social competition is modeled as a pairwise voluntary matching game. An individual' s matching value, i.e., his desirability as a social partner, is assumed to be positively correlated with one's wealth endowment or gross income.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.90.5.1491