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Deterministic political competition and regional economic outcomes when the creative class sets tax policy

Year: 2025

Type: article

Abstract: We analyze how deterministic political competition between the elites and the so-called creative class shapes economic outcomes in a stylized region. By deterministic, we mean a case where political power has shifted from the elites to the creative class with probability one. There are three groups in our region: workers, creative class members, and the elites. Unlike previous studies, tax policy in our region is set not by the elites but instead by the creative class. In this setting, we first present a counterintuitive result in which the creative class prefers to tax itself, and not the elites or the workers, with the tax proceeds being redistributed also to itself via lump-sum transfers. Second, we explain why this counterintuitive result makes sense. Finally, we discuss whether the above counterintuitive result will hold if the proceeds of taxation are redistributed using lump-sum transfers to all the groups in our region and not just to the creative class.

Source: Regional Science Policy & Practice

DOI: 10.1016/j.rspp.2025.100198

Authors: Amitrajeet A. Batabyal, Hamid Beladi

Institutions: Rochester Institute of Technology, The University of Texas at San Antonio

Language: English

Topic: Local Government Finance and Decentralization

Subfield: Political Science and International Relations

Field: Social Sciences

Domain: Social Sciences

SDGs: Peace, justice, and strong institutions, Reduced inequalities

Open Access status: gold

Estimated APC paid: $1,596