The paper by Alberto Alesina and George-Marios Angeletos explores the relationship between social beliefs about income inequality and redistributive policies in the United States and Europe. They argue that different perceptions of the sources of income inequality, such as individual effort versus luck, influence the level of taxation and redistribution in a society. If a society believes that income is primarily determined by individual effort, it will choose lower taxes and less redistribution, leading to higher effort and more market fairness. Conversely, if a society believes that income is largely determined by luck, it will tax heavily to correct for this inequality, distorting market outcomes and reinforcing the belief that luck is a significant factor. The authors model this interaction using a non-overlapping generation framework, where agents make investment and effort decisions, and the government sets tax rates and redistribution levels. They find that the optimal tax rate depends on the relative importance of luck and effort in determining income, with higher taxes when luck is perceived to be more influential. This leads to the possibility of multiple equilibria, where different levels of taxation and redistribution can coexist, depending on the social preferences for fairness and the distribution of income. The paper also reviews empirical evidence supporting the existence of such social preferences for fairness and their impact on political outcomes. It concludes that the observed differences in income inequality and redistributive policies between the United States and Europe can be explained by these social beliefs and their influence on economic and political choices.The paper by Alberto Alesina and George-Marios Angeletos explores the relationship between social beliefs about income inequality and redistributive policies in the United States and Europe. They argue that different perceptions of the sources of income inequality, such as individual effort versus luck, influence the level of taxation and redistribution in a society. If a society believes that income is primarily determined by individual effort, it will choose lower taxes and less redistribution, leading to higher effort and more market fairness. Conversely, if a society believes that income is largely determined by luck, it will tax heavily to correct for this inequality, distorting market outcomes and reinforcing the belief that luck is a significant factor. The authors model this interaction using a non-overlapping generation framework, where agents make investment and effort decisions, and the government sets tax rates and redistribution levels. They find that the optimal tax rate depends on the relative importance of luck and effort in determining income, with higher taxes when luck is perceived to be more influential. This leads to the possibility of multiple equilibria, where different levels of taxation and redistribution can coexist, depending on the social preferences for fairness and the distribution of income. The paper also reviews empirical evidence supporting the existence of such social preferences for fairness and their impact on political outcomes. It concludes that the observed differences in income inequality and redistributive policies between the United States and Europe can be explained by these social beliefs and their influence on economic and political choices.