Intergenerational earnings persistence and the provision of public goods: evidence from chile’s constitutional process

This paper studies the relationship between intergenerational economic persistence and preferences for the provision of public goods. Specifically, we develop a simple theoretical model in which a public good is financed through proportional taxation, and that predicts a lower provision of public go...

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Bibliographic Details
Published in:Journal of economic inequality 2023-03, Vol.21 (1), p.47-81
Main Authors: Cortes Orihuela, Javier, Díaz, Juan D., Gutiérrez Cubillos, Pablo, Troncoso, Pablo A.
Format: Article
Language:English
Subjects:
Development Economics
Dictators
Earnings
Economic aspects
Economic Growth
Economics
Economics and Finance
Equality
Estimates
Inequality
International Economics
Parents & parenting
Political power
Political Science
Public Finance
Public good
Public goods
Referendums
Social aspects
Social mobility
Society
Tax reform
Taxation
Upward mobility
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Summary:This paper studies the relationship between intergenerational economic persistence and preferences for the provision of public goods. Specifically, we develop a simple theoretical model in which a public good is financed through proportional taxation, and that predicts a lower provision of public goods given an increase in the intergenerational earnings elasticity (IGE), which is widely recognized as a measure of the degree of economic persistence from one generation to the next in society. We test this model empirically using the results of the 2020 Chilean national plebiscite, which asked about the replacement of the standing constitution by a new one that would potentially expand the role of the state in the provision of public goods. Our estimates suggest the existence of a positive association between the IGE and the share of the vote against a new constitution, even after controlling for median income and income inequality. These findings are consistent with our model and suggest that sectors of society that exhibit higher degrees of economic persistence also show greater reluctance towards redistributive policies that increase public goods provision.
ISSN:1569-1721
1573-8701
DOI:10.1007/s10888-022-09555-5