(), Sten Nyberg
() and Jörgen W. Weibull
Assar Lindbeck: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 91 Stockholm, Sweden
Sten Nyberg: Stockholm University, Postal: Stockholm University, S-106 91 Stockholm, Sweden
Jörgen W. Weibull: Stockholm School of Economics, Postal: Stockholm School of Economics, Box 6501, S-113 83 Stockholm, Sweden
Abstract: This paper analyzes the interplay between economic incentives and social norms in a public finance context. We assume that to live off one's own work is a social norm, and that the larger the population fraction adhering to this norm, the more intensely it is felt by the individual. It is shown that this may give rise to multiple equilibria and to non-linearities that do not arise from economic incentives alone. In the model, individuals also vote on taxes and transfers. Hence, the social norm influences both their economic and political behavior. We show that monotone and continuous changes in external factors may result in non-monotone, and even discontinuous, changes in political equilibrium.
33 pages, November 3, 1997
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