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A Rational Explanation for the Redistribution Paradox. Theory and Empirical Evidence
Author(s) -
Antonietti Roberto,
Farina Francesco,
Fontini Fulvio
Publication year - 2016
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12118
Subject(s) - economics , redistribution (election) , unemployment , robustness (evolution) , social security , econometrics , tax rate , welfare , monotonic function , empirical evidence , microeconomics , macroeconomics , market economy , mathematical analysis , biochemistry , chemistry , philosophy , mathematics , epistemology , politics , political science , gene , law
Abstract 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.