What is it about?
The paper provides a rational explanation for the redistribution paradox, whereby low-income individuals seeking more social security prefer a lower taxation although this might imply a reduced welfare. A simple model of tax transfer and redistribution is presented, with various agents facing two different unemployment probabilities. We investigate how the preferred tax rate changes with the probability of being unemployed. We show that, when the probability of unemployment for the less-skilled correlates negatively with that of the highly skilled, the relationship with the tax rate is not monotonic and depends on the level of risk aversion. This theoretical framework is confirmed in an empirical investigation based on microeconomic data, and in a robustness test based on macroeconomic data.
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Why is it important?
Our findings show that even low-skilled, usually low-income, individuals (i.e. the median voters) can vote for less redistributive policies. The reason lies in their risk aversion with respect to possible unemployment.
Perspectives
This article is the outcome of a fruitful collaboration among two economic theorists and an applied economist. It proposes a simple and clear theoretical setup and a simple, but robust, econometric exercise to corroborate an original idea about the redistribution paradox. For me, it was a pleasure to work with my two colleagues and share ideas with other scholars when the paper was presented at seminars and conferences.
Prof Roberto Antonietti
Universita degli Studi di Padova
Read the Original
This page is a summary of: A Rational Explanation for the Redistribution Paradox. Theory and Empirical Evidence, Scottish Journal of Political Economy, June 2016, Wiley,
DOI: 10.1111/sjpe.12118.
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