We provide a politico-economic theory of income redistribution with endogenous social identity of voters. Our analysis uncovers a non-monotonic relationship between market income inequality and redistributive taxation in line with the mixed evidence on the sign of their empirical relationship: taxation first increases with wage inequality as all voters identify with others, but then drops sharply as affluent voters switch to identify in-group. We further add ethnicity as an identification attribute.

The global economy consists of more than 300 million firms, connected through an estimated 13 billion supply links [see supplementary materials (SM)], that produce most goods and services. It has long been unthinkable to analyze the world economy at the firm level, even less so its intricate network of supply chain linkages. This blind spot has left us ill-prepared to make fast and well-informed decisions, begetting, for example, prolonged shortages in raw materials and critical medical supplies during the COVID-19 pandemic.