Inequality as an Externality : Theoretical Insights and Public Sentiment
Thesis: The primary topic of this doctoral thesis is the connection between economic inequality's consequences — how inequality could affect the amount of social unrest, trust, or democratic institutions, for example — and economic redistribution. Each of the three chapters discuss this link in some way. Chapter One is theoretical, introducing such consequences into standard economic frameworks and discussing why they imply that economic inequality itself is an externality. Chapters Two and Three are based on empirical large-scale surveys and explores public opinion on the issue. As a whole, the thesis sheds light on how the consequences of economic inequality influence our willingness to redistribute, both from an optimal and real-world perspective. In Chapter One, co-authored with Frank Cowell, the focus is on how the consequences of economic inequality impact traditional economic models. The paper considers such consequences as an economic externality, which presents a new rationale for government redistribution alongside existing equity-based reasons. Through the classical Mirrlees optimal income taxation model, theoretical and simulation-based analysis demonstrates that the externality particularly affects optimal top marginal tax rates. These rates can optimally exceed 90%. The paper further illustrates that the current U.S. tax system is not sufficiently redistributive to both value income at the bottom more than at the top and to consider inequality as having even moderate negative consequences. Chapter Two, co-authored with Max Lobeck, presents novel empirical research on U.S. citizens' beliefs regarding the consequences of economic inequality. This study utilizes large-scale surveys conducted by the authors with a total of 6,731 respondents in the United States. The findings reveal that a majority of individuals perceive economic inequality to have significant and diverse negative consequences. Through an information experiment, the paper demonstrates that these beliefs exert a substantial causal influence on individuals' preferences for redistribution. The study also finds indicative evidence that beliefs about the consequences of economic inequality are less divided across incomes and political parties than comparable economic fairness views, and that such fairness-based arguments induce more anger in respondents. Chapter Three, also joint with Max Lobeck, tests the external validity of several of the findings in Chapter Two. The paper uses a novel methodology across three surveys with a total of 4,444 respondents to gather a large sample of fairness-based and consequences-based arguments which are evaluated across various dimensions by other respondents. The paper strengthens the finding that fairness-based arguments are comparatively more anger-inducing, and indicates that this is because these arguments are based on more normative ideas than arguments about inequality’s consequences.
Keywords
- Economic inequality
- Government redistribution
- Economic externality
- Income taxation model
- Individuals’ preferences for redistribution
- Consequences of economic inequality
- Traditional economic models
Issuing body(s)
- Université Panthéon-Sorbonne – Paris I
Date of defense
- 08/09/2023
Thesis director(s)
- Stéphane Gauthier
Pages
- 243 p.
URL of the HAL notice
Version
- 1