Aspects of Income Inequality in a Creative Region

Batabyal, Amitrajeet (2020): Aspects of Income Inequality in a Creative Region.

Abstract

We analyze a stylized creative region’s economy. There are two goods (consumption and creative capital) and creative class members differ in their income generating abilities. The distribution of abilities in the creative class population is such that the median ability is less than the average ability. There is a proportional income tax rate and all tax revenues are redistributed to the creative class members by the regional authority (RA) with a uniform, lump-sum transfer. In this setting, we perform four tasks. First, we determine the tax rate that maximizes the lump-sum transfer. Second, we show that income equality requires the tax rate to equal unity and that the poorest creative class member is better off with a lower tax rate and hence more inequality. Third, given the ith creative class member’s preference over the tax rate and the transfer, we ascertain the tax rate that will be chosen by majority voting. Finally, we discuss the connection between increasing inequality and the majority chosen tax rate.

• Item Type: MPRA Paper
• Language: English
• Keywords: Consumption, Creative Capital, Creative Class, Income Inequality, Proportional Tax
• Subjects: D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H71 - State and Local Taxation, Subsidies, and Revenue; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

References

Arribas-Bel, D., Kourtit, K., and Nijkamp, P. 2015. The sociocultural sources of urban buzz, Environment and Planning C, 33, 1-17.

Batabyal, A.A. 2017. A note on optimal income redistribution in a creative region, Regional Science Inquiry, 9, 39-44.

Batabyal, A.A. 2018. Review of The New Urban Crisis by Richard Florida, Regional Studies, 52, 310-311.

Batabyal, A.A., and Beladi, H. 2018. Artists, engineers, and aspects of economic growth in a creative region, Economic Modelling, 71, 214-219.

Batabyal, A.A., and Nijkamp, P. 2016. Creative capital in production, inefficiency, and inequality: A theoretical analysis, International Review of Economics and Finance, 45, 553-558.

Chiripanhura, B. 2011. Median and mean income analyses, Economic and Labour Market Review, 5, 45-63.

Donegan, M., and Lowe, N. 2008. Inequality in the creative city: Is there still a place for ‘old- fashioned’ institutions? Economic Development Quarterly, 22, 46-62.

Florida, R. 2002. The Rise of the Creative Class. Basic Books, New York, NY.

Florida, R. 2005. The Flight of the Creative Class. Harper Business, New York, NY.

Florida, R. 2018. The New Urban Crisis. Basic Books, New York, NY.

Florida, R., Mellander, C., and Stolarick, K. 2008. Inside the black box of regional development---human capital, the creative class, and tolerance, Journal of Economic Geography, 8, 615-649.

Hindriks, J., and Myles, G.D. 2013. Intermediate Public Economics, 2nd edition. MIT Press, Cambridge, MA.

Kane, K., and Hipp, J.R. 2019. Rising inequality and neighborhood mixing in US metro areas, Regional Studies, 53, 1680-1695.

Leslie, D., and Catungal, J.P. 2012. Social justice and the creative city: Class, gender, and racial inequalities, Geography Compass, 6, 111-122.

Peck, J. 2005. Struggling with the creative class, International Journal of Urban and Regional Research, 29, 740-770.

Reese, L.A., and Sands, G. 2008. Creative class and economic prosperity: Old nostrums, better packaging? Economic Development Quarterly, 22, 3-7.

Siemiatycki, E. 2013. A smooth ride? From industrial to creative urbanism in Oshawa, Ontario, International Journal of Urban and Regional Research, 37, 1766-1784.

Tiebout, C. 1956. A pure theory of local expenditures, Journal of Political Economy, 64, 416-424.