Measuring up
“Last-Place Aversion”: Evidence and Redistributive Implications
Ilyana Kuziemko et al.
Quarterly Journal of Economics, forthcoming
Abstract:
We present evidence from laboratory experiments showing that individuals are “last-place averse.” Participants choose gambles with the potential to move them out of last place that they reject when randomly placed in other parts of the distribution. In modified-dictator games, participants randomly placed in second-to-last place are the most likely to give money to the person one rank above them instead of the person one rank below. Last-place aversion suggests that low-income individuals might oppose redistribution because it could differentially help the group just beneath them. Using survey data, we show that individuals making just above the minimum wage are the most likely to oppose its increase. Similarly, in the General Social Survey, those above poverty but below median-income support redistribution significantly less than their background characteristics would predict.
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Economic Freedom and Income Inequality Revisited: Evidence from a Panel Error Correction Model
Nicholas Apergis, Oguzhan Dincer & James Payne
Contemporary Economic Policy, January 2014, Pages 67–75
Abstract:
We investigate the causal relationship between income inequality and economic freedom using data from U.S. states over the period 1981 to 2004 within a panel error correction model framework. The results indicate bidirectional causality between income inequality and economic freedom in both the short and the long run. These results suggest that high income inequality may cause states to implement redistributive policies causing economic freedom to decline. As economic freedom declines, income inequality rises even more. In other words, it is quite possible for a state to get caught in a vicious circle of high income inequality and heavy redistribution.
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Better Off Than We Know: Distorted Perceptions of Incomes and Income Inequality in America
John Chambers, Lawton Swan & Martin Heesacker
Psychological Science, forthcoming
Abstract:
Three studies examined Americans’ perceptions of incomes and income inequality using a variety of criterion measures. Contrary to recent findings indicating that Americans underestimate wealth inequality, we found that Americans not only overestimated the rise of income inequality over time, but also underestimated average incomes. Thus, economic conditions in America are more favorable than people seem to realize. Furthermore, ideological differences emerged in two of these studies, such that political liberals overestimated the rise of inequality more than political conservatives. Implications of these findings for public policy debates and ideological disagreements are discussed.
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David Jacobs, Chad Malone & Daniel Tope
Research in Social Stratification and Mobility, forthcoming
Abstract:
This study assesses whether the growth in economic inequality since the late 1960s produced enhanced support for conservative policies in the U.S. House of Representatives. Tests of the effects of inequality and tests of hypotheses derived from minority threat theory are conducted using a pooled time-series, fixed-effects design. The political influence of the most menacing street crime the public blames on underclass minorities is captured as well. Analyses based on 1,488 state-years show that income inequality, minority presence, and the murder rates reduce liberal roll-call votes. Interactions that assess period contrasts in the strength of relationships show that increases in inequality led to greater congressional support for conservative measures particularly in the later years of the post civil rights era. Such tests also support racial threat theory because they show that a strong negative relationship between African American presence and liberal roll-call votes persisted throughout this period. Such results corroborate claims that the expansion in economic inequality since the late 1960s helped increase support for conservative legislation.
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Redistribution, Pork, and Elections
John Huber & Michael Ting
Journal of the European Economic Association, December 2013, Pages 1382–1403
Abstract:
Why might citizens vote against redistributive policies from which they would seem to benefit? Many scholars focus on ‘wedge’ issues such as religion or race, but another explanation might be geographically-based patronage — or pork. We examine the tension between redistribution and patronage with a model that combines partisan elections across multiple districts with legislation in spatial and divide-the-dollar environments. The model yields a unique equilibrium that describes the circumstances under which poor voters support right-wing parties that favor low taxes and redistribution, and under which rich voters support left-wing parties that favor high taxes and redistribution. The model suggests that one reason standard tax and transfer models of redistribution often do not capture empirical reality is that redistributive transfers are a less efficient tool for attracting votes than are more targeted policy programs. The model also underlines the central importance of party discipline during legislative bargaining in shaping the importance of redistribution in voter behavior, and it describes why right-wing parties should have an advantage over left-wing ones in majoritarian systems.
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Why the Poor Play the Lottery: Sociological Approaches to Explaining Class-based Lottery Play
Jens Beckert & Mark Lutter
Sociology, December 2013, Pages 1152-1170
Abstract:
Why do the poor spend more on lottery tickets than their wealthier and better educated peers? While social scientists generally agree that there is an inverse relationship between socio-economic position and patterns of lottery play, there is debate on what factors cause lottery gambling. Using survey data from a nationwide probability sample, we test three sociological approaches – socio-structural, cultural and social network accounts – to explain why the poor play the lottery. While controlling for cognitive bias theory, we find that peer play, educational attainment and self-perceived social deprivation have strong effects on lottery play. Culture, the study finds, plays a much lesser role. Although lottery players demonstrate fatalistic value orientations, it is not a lack of a ‘Protestant’ work ethic that makes the poor spend proportionally more on lottery tickets. The findings of this study generally point to the importance of social structures in explaining lottery gambling.
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Historical trends in the degree of federal income tax progressivity in the United States
Timothy Mathews
Social Science Journal, forthcoming
Abstract:
This study examines how the degree of progressivity of the U.S. Federal income tax evolved between 1929 and 2009. Data from the Internal Revenue Service, U.S. Census Bureau, and Bureau of Economic Analysis is used to construct annual tax concentration curves and income concentration curves. Numerical values of four tax progressivity indices are determined. These values suggests that: (i) the degree of progressivity has varied greatly over time, (ii) taxation outcomes have become more progressive over the past four decades, (iii) the period from the early 1950s through 1974 was one of relatively low progressivity, whereas the period from 1975 through 2009 was one of relatively high progressivity, (iv) the most progressive outcomes of the last 67 years have been realized within the past decade, and (v) recent outcomes are much less progressive than were outcomes before 1942.
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The local Joneses: Household consumption and income inequality in large metropolitan areas
Maria Charles & Jeffrey Lundy
Research in Social Stratification and Mobility, December 2013, Pages 14–29
Abstract:
Do household consumption practices depend upon local standards of decency or distinction? This article explores effects of local income structure on household consumption across 18 large U.S. metropolitan statistical areas (MSAs). Results show greater overall spending in high-inequality MSAs. But contrary to conventional depictions of “conspicuous consumption,” the additional spending goes mostly toward shelter and food, not more visible purchases of jewelry, vehicles, apparel, and entertainment. High median income, by contrast, is associated with greater spending in two visible goods categories (apparel and entertainment), but only among low-income households. Results support depictions of expenditure cascades, where spending by those better off ratchets up local standards of “normal” and socially acceptable living. Some unfortunate consequences include decreased investment in health care and heightened competition for access to quality public schooling. In this sense, growing economic inequality and positional consumption may be self-reinforcing processes.
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Jeff Larrimore, Richard Burkhauser & Philip Armour
NBER Working Paper, December 2013
Abstract:
With data from the March CPS and using shift-share analysis, we analyze the factors that account for changes in post-tax post-transfer income during each of the past four recessions. What distinguishes the Great Recession is that drops in employment rather than wage earnings drove income declines. In addition, taxes and transfers played a much greater role in offsetting market income losses — a result largely missed in analyses that do not account for taxes and transfers. This is particularly so among the bottom quintile of the distribution where lower and increased transfers offset more than one-half of the market income declines.
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US household real net worth through the great recession and beyond: Have we recovered?
Lucia Dunn & Randall Olsen
Economics Letters, February 2014, Pages 272–275
Abstract:
Household data adjusted for inflation show net worth is still below its pre-Great Recession levels, unlike aggregate Federal Reserve data. Poorer and younger households both lost and recovered more net worth percentage-wise. Financial assets have recovered more than non-financial assets.
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Bones of Contention: The Political Economy of Height Inequality
Carles Boix & Frances Rosenbluth
American Political Science Review, forthcoming
Abstract:
Human osteological data provide a rich, still-to-be-mined source of information about the distribution of nutrition and, by extension, the distribution of political power and economic wealth in societies of long ago. On the basis of data we have collected and analyzed on societies ranging from foraging communities to the ancient Egyptian and modern European monarchies, we find that the shift from hunting and gathering to complex fishing techniques and to labor-intensive agriculture opened up inequalities that had discernible effects on human health and stature. But we also find that political institutions intervened decisively in the distribution of resources within societies. Political institutions appear to be shaped not only by economic factors but also by military technology and vulnerability to invasion.
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Anti-equality: Social comparison in young children
Mark Sheskin, Paul Bloom & Karen Wynn
Cognition, February 2014, Pages 152–156
Abstract:
Young children dislike getting less than others, which might suggest a general preference for equal outcomes. However, young children are typically not averse to others receiving less than themselves. These results are consistent with two alternatives: young children might not have any preferences about others receiving less than themselves, or they might have preferences for others receiving less than themselves. We test these alternatives with 5- to 10-year-old children. We replicate previous findings that children will take a cost to avoid being at a relative disadvantage, but also find that 5- and 6-year-olds will spitefully take a cost to ensure that another’s welfare falls below their own. This result suggests that the development of fairness includes overcoming an initial social comparison preference for others to get less relative to oneself.
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Anita Kim & Christopher Berry
Journal of Personality, forthcoming
Objective: To investigate the personality processes involved in the debate surrounding the use of cognitive ability tests in college admissions.
Method: In Study 1, 108 undergraduates (18.88 years, 60 women, 80 Whites) completed measures of Social Dominance Orientation (SDO), testing self-efficacy, and attitudes regarding the use of cognitive ability tests in college admissions; SAT/ACT scores were collected from the Registrar. Sixty-seven undergraduates (19.06 years, 39 women, 49 Whites) completed the same measures in Study 2 along with measures of endorsement of commonly presented arguments about test use. In Study 3, 321 American adults (35.58 years, 180 women, 251 Whites) completed the same measures used in Study 2; half were provided with facts about race and validity issues surrounding cognitive ability tests.
Results: Individual differences in SDO significantly predicted support for the use of cognitive ability tests in all samples, after controlling for SAT/ACT scores and test self-efficacy and also among participants who read facts about cognitive ability tests. Moreover, arguments for and against test use mediated this effect.
Conclusion: The present study sheds new light on an old debate by demonstrating that individual differences in beliefs about hierarchy play a key role in attitudes toward cognitive ability test use.
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Democracy, Redistribution and Inequality
Daron Acemoglu et al.
NBER Working Paper, December 2013
Abstract:
In this paper we revisit the relationship between democracy, redistribution and inequality. We first explain the theoretical reasons why democracy is expected to increase redistribution and reduce inequality, and why this expectation may fail to be realized when democracy is captured by the richer segments of the population; when it caters to the preferences of the middle class; or when it opens up disequalizing opportunities to segments of the population previously excluded from such activities, thus exacerbating inequality among a large part of the population. We then survey the existing empirical literature, which is both voluminous and full of contradictory results. We provide new and systematic reduced-form evidence on the dynamic impact of democracy on various outcomes. Our findings indicate that there is a significant and robust effect of democracy on tax revenues as a fraction of GDP, but no robust impact on inequality. We also find that democracy is associated with an increase in secondary schooling and a more rapid structural transformation. Finally, we provide some evidence suggesting that inequality tends to increase after democratization when the economy has already undergone significant structural transformation, when land inequality is high, and when the gap between the middle class and the poor is small. All of these are broadly consistent with a view that is different from the traditional median voter model of democratic redistribution: democracy does not lead to a uniform decline in post-tax inequality, but can result in changes in fiscal redistribution and economic structure that have ambiguous effects on inequality.
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Kyung Joon Han
International Journal of Public Opinion Research, Winter 2013, Pages 502-521
Abstract:
Does the income inequality of a country increase the nationalistic sentiments of its citizens? If so, why do people become more nationalistic when inequality grows? This article answers these questions, which have been historically observed and theoretically suggested, but rarely answered with empirical tests. By borrowing formal models in Shayo (2009) and using a multilevel analysis method with survey data in multiple years, this article shows that income inequality increases the national pride of poor people, which is an essential aspect of nationalistic sentiments, particularly in countries whose lower class has many migrants. This result implies that the link between income inequality, income levels, and nationalistic sentiments may be shaped by other social features such as the level of migration.
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Taxation of Human Capital and Wage Inequality: A Cross-Country Analysis
Fatih Guvenen, Burhanettin Kuruscu & Serdar Ozkan
Review of Economic Studies, forthcoming
Abstract:
Wage inequality has been significantly higher in the United States than in continental European countries (CEU) since the 1970s. Moreover, this inequality gap has further widened during this period as the US has experienced a large increase in wage inequality, whereas the CEU has seen only modest changes. This paper studies the role of labor income tax policies for understanding these facts, focusing on male workers. We construct a life cycle model in which individuals decide each period whether to go to school, work, or stay non-employed. Individuals can accumulate human capital either in school or while working. Wage inequality arises from differences across individuals in their ability to learn new skills as well as from idiosyncratic shocks. Progressive taxation compresses the (after-tax) wage structure, thereby distorting the incentives to accumulate human capital, in turn reducing the cross-sectional dispersion of (before-tax) wages. Consistent with the model, we empirically document that countries with more progressive labor income tax schedules have (i) significantly lower before-tax wage inequality at different points in time and (ii) experienced a smaller rise in wage inequality since the early 1980s. We then study the calibrated model and find that these policies can account for half of the difference between the US and the CEU in overall wage inequality and 84% of the difference in inequality at the upper end (log 90-50 differential). In a two-country comparison between the US and Germany, the combination of skill-biased technical change and changing progressivity of tax schedules explains all the difference between the evolution of inequality in these two countries since the early 1980s.
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Optimal Redistribution: A Life-Cycle Perspective
Jean-Baptiste Michau
Journal of Public Economics, forthcoming
Abstract:
In this paper, I characterize the optimal redistribution policy in a simple life-cycle framework with both an intensive and an extensive margin of labor supply. The extensive margin corresponds to the choice of a retirement age. The optimal allocation cannot be implemented in a decentralized economy by a standard non-linear income tax alone. It can however be implemented by a history-dependent social security system which redistributes resources across agents. A calibration of the model to the U.S. economy reveals that the retirement age should optimally be sharply increasing in productivity and that implementing the optimal life-cycle redistribution policy can generate large social welfare gains.
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Height, Skills, and Labor Market Outcomes in Mexico
Tom Vogl
Journal of Development Economics, March 2014, Pages 84–96
Abstract:
Taller workers are paid higher wages. A prominent explanation for this pattern is that physical growth and cognitive development share childhood inputs, inducing a correlation between adult height and two productive skills: strength and intelligence. This paper explores the relative roles of strength and intelligence in explaining the labor market height premium among Mexican men. While cognitive test scores account for a limited share of the height premium, roughly half of the premium can be attributed to the educational and occupational choices of taller workers. Taller workers obtain more education and sort into occupations with greater intelligence requirements and lower strength requirements, suggesting a possible role for cognitive skill.
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Unions, Wage Gaps, and Wage Dispersion: New Evidence from the Americas
Fernando Rios-Avila & Barry Hirsch
Industrial Relations, January 2014, Pages 1–27
Abstract:
Using a common methodology, the effects of unions on wage levels and wage dispersion are estimated for two neighboring countries, Bolivia and Chile, and for the United States. The analysis shows that unions have broadly similar effects on the wage distribution within these three economies. The findings suggest that the political economy of unions, coupled with market constraints on labor costs, produce commonality in union wage effects that transcend other economic and institutional differences.
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Daniel Diermeier, Georgy Egorov & Konstantin Sonin
NBER Working Paper, December 2013
Abstract:
It is often argued that additional checks and balances provide economic agents with better protection from expropriation of their wealth or productive capital. We demonstrate that in a dynamic political economy model this intuition may be flawed. Surprisingly, increasing the number of veto players or the majority requirement for redistribution may reduce property right protection on the equilibrium path. The reason is the existence of two distinct mechanisms of property rights protection. One are formal constraints that allow individuals or groups to block any redistribution which is not in their favor. The other occurs in equilibrium where agents without such powers protect each other from redistribution. Players without formal blocking power anticipate that the expropriation of other similar players will ultimately hurt them and thus combine their influence to prevent redistributions. Yet, such incentives can be undermined by adding formal constraints. The flip-side of this effect is that individual investment efforts might require coordination. The model also predicts that the distribution of wealth in societies with weaker formal institutions (smaller supermajority requirements) among players without veto power will tend to be more homogenous.
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A Distributional Analysis of the Benefits of Economic Freedom
Ryan Compton, Daniel Giedeman & Gary Hoover
European Journal of Political Economy, March 2014, Pages 121–133
Abstract:
Using US state-level economic freedom measures, we investigate the extent that changes in economic freedom affect US State income growth. More importantly, we study how this effect differs across income quintiles, allowing us to address the particularly timely question of who benefits from increases in economic freedom and who does not. Our results indicate that while increases in economic freedom positively contribute to income growth, the strength of this effect differs across quintiles.
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Audrey Simons, Daniëlle Groffen & Hans Bosma
European Journal of Public Health, December 2013, Pages 1010-1012
Abstract:
The larger than expected socio-economic inequalities in health in more egalitarian countries might be explained by a heightened social mobility in these countries. Therefore, the aim of this explorative study was to examine the associations between country-level social mobility, income inequality and socio-economic differences in all-cause mortality, using country-level secondary data from 12 European countries. Both income equality and social mobility were found to be associated with larger socio-economic differences in mortality, particularly in women. These findings suggest that social mobility and income equality, beside their shiny side of improving population health, might have a shady side of increasing socio-economic health inequalities.
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Income inequality and sexually transmitted infections in the United States: Who bears the burden?
Guy Harling et al.
Social Science & Medicine, February 2014, Pages 174–182
Abstract:
Three causal processes have been proposed to explain associations between group income inequality and individual health outcomes, each of which implies health effects for different segments of the population. We present a novel conceptual and analytic framework for the quantitative evaluation of these pathways, assessing the contribution of: (i) absolute deprivation – affecting the poor in all settings – using family income; (ii) structural inequality – affecting all those in unequal settings – using the Gini coefficient; and (iii) relative deprivation – affecting only the poor in unequal settings – using the Yitzhaki index. We conceptualize relative deprivation as the interaction of the other two measures. We test our approach using hierarchical models of 11,183 individuals in the National Longitudinal Study of Adolescent Health (Add Health). We examine the relationship between school-level inequality and sexually transmitted infections (STI) – self-reported or laboratory-confirmed Chlamydia, Gonorrhoea or Trichomoniasis. Results suggest that increased poverty and inequality were both independently associated with STI diagnosis, and that being poor in an unequal community imposed an additional risk. However, the effects of inequality and relative deprivation were confounded by individuals’ race/ethnicity.
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Distributional Characteristics of Income Insecurity in the U.S., Germany, and Britain
Nicholas Rohde, Kam Ki Tang & Prasada Rao
Review of Income and Wealth, forthcoming
Abstract:
This paper studies income volatility using recent data from the Cross National Equivalence File (CNEF). Measures of downward instability are applied to household income streams and the results are interpreted as indicators of income insecurity. Using this method we examine (i) cross national differences in average insecurity levels, (ii) the effects of taxes and transfers, and (iii) relationships between the insecurity index and household income. Insecurity estimates based on pre-government incomes are highest in Britain and lowest in Germany, however results for post-government incomes are highest in the U.S. It is also shown that insecurity estimates based upon pre-government incomes are heavily concentrated at the lower end of the distribution; although governments are effective at smoothing the income streams of these households. We also search for determinants of our measure and find that gender, household size, health status, and industry affiliations of the household head are the most significant covariates.
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Material Deprivation, Economic Stress, and Reference Groups in Europe: An Analysis of EU-SILC 2009
Christopher Whelan & Bertrand Maître
European Sociological Review, December 2013, Pages 1162-1174
Abstract:
In this article, we take advantage of the recent availability of data from the special module on material deprivation in the 2009 European Union Statistics on Income and Living Conditions to develop a more comprehensive understanding of the relationship between material deprivation and economic stress, the mediating and moderating roles played by cross-national differences in levels of income and income inequality, and the implications for competing perspectives on the nature of reference groups in Europe. The article establishes the critical role of basic deprivation, relating to inability to enjoy customary standards of living, in influencing economic stress levels. National income levels and inequality had no direct influence on economic stress. However, the impact of basic deprivation was stronger in countries with higher levels of income, indicating the crucial role of national reference groups. An interaction between basic deprivation and income inequality was also observed. However, contrary to the expectation that experiencing basic deprivation in a national context of high income inequality is likely to be particularly stressful, the consequences of such deprivation were most negative in low inequality countries. Experiencing basic deprivation where high income levels and lower inequality would lead to the expectation that such deprivation is eminently avoidable exacerbates its impact.