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Political Activism and the Provision of Dynamic Incentives: The Guardians of the Pie in the Battle for Redistribution
2 : European University Institute
(EUI)
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 ingluence game across the population restores incentives. In some cases, the outcome of the game corresponds with the optimal allocation under commitment.
