A Study On Preference For Redistribution Based On Political Inequality

Since its adoption of the reform and opening up policy,China has been changing with each passing day.With high-speed economic growth in China,the income gap is gradually showing up.Booming economy may widen the gap and cause people's dissatisfaction.While higher income inequality doesn't mean more support for redistribution,it's meaningful to study individual's preference for redistribution.In many societies with small minority of rich individuals�that is,societies with right skewed income distribution�the majority of citizens can potentially benefit from the redistribution of high tax rate paid by the wealthy.Risk aversion and social preferences also help to explain support for redistribution in some democracies.On the other hand,in societies that promote upward mobility,poor individuals who work hard enough to become rich do not want to be taxed at high rates.Besides the deadweight loss of taxation,high taxes can hurt incentives to exert greater effort in the labor market,possibly resulting in lower aggregate social welfare.Scholars and policy makers often have different motivations and theories when designing what they believe are ideal tax rate.Individual's preference for redistribution is a good start point for us to figure out the social ideal tax rate favored by most of people.Individual preference for income redistribution is a core issue of the redistribution policy design.Some classic proposed equilibrium-based models addressing equity-efficiency tradeoffs in tax rate design are based on the median voter theorem.The main assumption of these models is that in a majority-rule voting system,the median voter's ideal rate will be implemented.While their theoretical implications offer an informative benchmark for welfare analysis,a result in which that desires of individual voters are equally represented in the political process is rare,if not completely absent,in naturally occurring situations.In fact,citizens are not politically equal in economically unequal societies.Therefore,the first part of the study introduces political inequality to reinvestigate the Meltzer�Richard model of equilibrium tax rates,income redistribution and labor supply.I developed a theory that links political inequality to the existing models,using one privileged group and one non-privileged group as examples.Since they have more initial income due to higher productivities,individuals in the first group have greater potential to influence social redistribution policies under simple majority rule.This study also aims to understand the impact of political inequality on production decisions in the labor market,and see factors that influence individuals' and collective choices in the political process that determines the implemented tax rate and redistribution policies.When testing the proposed theory empirically,the use of observational data is fraught with methodological challenges.I conducted an experiment using 2*2 design for four treatments.I considered two primary dimentions: how to set up the initial productivity,and whether there exists political inequality.The most important two parts of individuals' income are from wage and capital/property gain.Wage income has always been the largest part of personal income and realized by labor-leisure choice.Meanwhile,capitcal income has become a significant factor to widen the gap between the rich and poor in China.I innovatively introduce personal capital productivity to describe the capital accumulation of different people and corresponding potentials of capital gain.The experiment varies the converting rules used to decide the implemented tax rate.The result shows that the revised model fits the data better and conforms to the external validity better.This experimental study provides a possible explanation for the failure of the current redistributive policies.Overweighting the demand of the privileged group will lead to lower income tax rate,which is in contrast to the policy intention.However,there is also a tradeoff between equity and efficiency,higher tax rate reduces the overall output.In the end,this study reports OLS regression results consisting of three independent varibles: implemented tax rate,proposed tax rate and labor supply.The results show that different productivity distributions,converting rules and some personal characteristics will significantly influence the independent varibles listed above.