The nexus between perceptions of inequality and preferences for redistribution

Abstract

This paper shows that perceptions of inequality are a key factor in the formation of preferences for redistribution and thereby in the determination of the equilibrium redistribution level. We build on the novel stylized facts provided by the survey experimental literature on perceptions of income inequality, highlighting that agents incorrectly estimate the shape of the income distribution because of limited information. Agents with income above the mean believe they are poorer than they actually are, and agents with income below the mean believe themselves to be richer. We revisit the standard framework on the political economy of redistribution and extend it in two ways. First, we introduce a more general two-sided inequality aversion. Second, we incorporate perceptions of income inequality, modeled by assuming that agents form expectations on the income level of the richest and the poorest in society. We show analytically that the equilibrium redistribution level is crucially determined by the interplay between the information treatment correcting the bias in perceptions of inequality and fairness considerations specified by the degree of inequality aversion. By doing this, we add (biased) perceptions of inequality to the list of potential factors explaining why, notwithstanding high inequality, an increase in the desire for redistribution has not been observed in many countries.

How does Inequality Hamper Subjective Well-being? The Role of Fairness

“…Firstly, for actual inequality to hurt people, it needs to be perceived. However, many studies suggest that people incorrectly perceive income distribution because of limited information and/or cognition (Cruces et al, 2013;Gimpelson & Treisman, 2018;Iacono & Ranaldi, 2021). Moreover, rather than actual inequality, perceived inequality matters more for redistribution preferences (Choi, 2019;Gimpelson & Treisman, 2018).…”

(Mis-)perception of Inequality:measures, determinants, and consequences

“…Having a full distribution of self-perception of social position in a country, the authors can calculate the perceived Gini coefficient at the country level. However, this measure can be affected by the middle-class bias (Hoy and Mager 2019;Iacono and Ranaldi 2021) partly due to the influence of endogenous reference groups. If the rich underestimate their wealth and the poor overestimate it (e.g., Cruces et al, 2013;Gimpelson and Treisman, 2017), then this would create a peak around position 5 or 6 for the self-reported social position, which is selfevident in Choi (2019).…”

Er samfunnskritiske jobber for dårlig betalt

“…Vi vet fra internasjonale undersøkelser at folk gjennomgående undervurderer eksisterende lønns-og inntektsforskjeller i samfunnet, og at folk også ønsker mindre forskjeller (se for eksempel Gimpelson & Treisman, 2018; Vi vet fra internasjonale undersøkelser at folk gjennomgående undervurderer eksisterende lønns og inntektsforskjeller i samfunnet, og at folk også ønsker mindre forskjeller. Hoy & Mager, 2021;Iacono & Ranaldi, 2021;Karadja et al, 2017;Kiatpongsan & Norton, 2014;Kuhn, 2020;Norton & Ariely, 2011;Osberg & Smeeding, 2006;Svallfors, 1997). Kiatpongsan og Norton (2014) rapporterer resultater fra en stor internasjonal surveyundersøkelse som inkluderer mer enn 50 000 respondenter fra 40 land (International Social Survey Programme (ISSP), Social Inequality).…”