Inequality, conspiracy theories, and redistribution

Despite a rapid increase in inequality, redistribution does not necessarily expand. I address this paradox by emphasizing a novel effect of inequality on the acceptance of conspiracy theories. For this purpose, I develop an electoral competition model in which voters are divided into rich and poor. Each voter weighs the desire to maintain their self-image against the need for accurate beliefs, leading to varied endorsements of conspiracy theories. In the model, greater inequality leads the poor to believe more strongly in conspiracy theories. As a result, poor voters can seek more reforms to defeat conspiracies and lower income taxation. I show that greater inequality paradoxically reduces income taxation when the initial inequality is high and the distortion of taxation is large. In the shadow of prevalent conspiracy theories, democracy may fail to act as a protector against rising inequality.