Political favoritism and internal conflicts
Department of Economics
Thursday, April 20, 2023
3:45 pm-5:00 pm
Taylor-Hibbard Seminar Room (Rm103)
Motivated by both historical and contemporary evidence, we propose a theory where government policy creates social stratification, reinforces inequality, and fuels internal conflicts. We study a society where the ruler's tax extraction is constrained by the ability of social groups to form resisting coalitions. First, we show that any ruling group would optimally create a ranking among social groups and demand lower taxes from higher ranks. As we show, this divide-and-conquer strategy (favoritism) creates social stratification even among identical social groups. Moreover, in an already stratified society, it reinforces inequality by assigning higher ranks (thus lower taxes) to stronger and richer groups. Second, we show that subjects minimize their tax burden by supporting the strongest group for the rulership, even though the ruling group can extract more taxes when it is stronger. Finally, we show that these political considerations generate a novel class of internal conflicts, status-related conflicts, where resource appropriation/destruction is aimed at climbing society's ranking, thus obtaining a more favorable fiscal treatment, or even gaining the support for the rulership.