Political Activism and the Provision of Dynamic Incentives
NBER Working Paper No. 26654
This paper studies the determination of income taxes in a dynamic setting with human capital accumulation. The goal is to understand the factors that support an outcome without complete redistribution, given a majority of relatively poor agents. In the analysis, the internal dynamics of income are not sufficient to prevent complete redistribution under majority rule without commitment. However, a political influence game across the population limits the support for expropriatory taxation and preserves incentives. In some cases, the outcome of the game corresponds with the optimal allocation under commitment.
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Document Object Identifier (DOI): 10.3386/w26654