Work values, endogenous sentiments redistribution

a r t i c l e i n f o JEL classification: D64 D72 Z13 H3 J2 Keywords: Social contract Endogenous sentiments Voting over taxes Moral work values Redistribution Income inequality Politico-economic equilibria We examine the interactions between individual behavior, sentiments and the social contract in a model of rational voting over redistribution. Agents have moral " work values ". Individuals' self-esteem and social consideration of others are endogenously determined comparing behaviors to moral standards. Attitudes toward redistribution depend on self-interest and social preferences. We characterize the politico-economic equilibria in which sentiments, labor supply and redistribution are determined simultaneously. The equilibria feature different degrees of " social cohesion " and redistribution depending on pre-tax income inequality. In clustered equilibria the poor are held partly responsible for their low income since they work less than the moral standard and hence redistribution is low. The paper proposes a novel explanation for the emergence of different sentiments and social contracts across countries. The predictions appear broadly in line with well-documented differences between the United States and Europe. In this paper we explore the interplay between work ethics, sentiments and social policy. We present a model where agents have standards of behavior relative to which they judge the actions of others, increasing their regard for those who exceed the standard and decreasing it for those who fall short. Similarly, according to social psychologists, agents' self-esteem is affected by their own deviations from moral standards in much the same way. 1 As agents' sentiments change, so, too, will their behavior. Moreover, this is likely to affect their view of the benefits of social programs and the worthiness of participants. The converse is true as well: social policies or institutions — the social contract — generally affect behavior and this, in turn, affects sentiments, as described above. Therefore, sentiments, behavior and social institutions must be determined jointly. To study this interaction, we extend the model by Meltzer and Richard (1981) of rational voting over redistributive taxes to include endogenous sentiments. In their model, agents supply labor in return for competitive wages, and earnings are subject to a purely redis-tributive proportional tax. The tax structure is determined by majority rule and reflects the preferences of the median voter. Agents are assumed to be purely egoistic and the median income is below the mean. Under these circumstances, if labor supply were inelastic, the resulting tax policy would …