Political Activism and the Provision of Dynamic Incentives: Growing the Pie in the Battle for Redistribution
Keyword(s):
Ex Post
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Abstract 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 and the inability to commit to future taxes. All agents agree ex ante that limiting tax and transfers is beneficial but a majority favors large redistribution, ex post, at the time of the vote. In a political influence game, group activism limits the support for expropriatory taxation and preserves incentives. In some cases, the outcome corresponds to the optimal allocation under commitment.