Does a rise in income inequality induce people to work harder to stay in the rat race ("keep up with the Joneses") or to simply drop out? We investigate this issue in a simple new framework in which heterogeneous ability agents get extra utility if their consumption keeps up with the economy's...

In the classic Meltzer and Richard (1981) model, the canonical model of income redistribution in democracies, voters, heterogeneous on the sole dimension of idiosyncratic productivity, evaluate an income-redistributive program that pays everyone a lump-sum income subsidy financed by a distorting...