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Political Reinforcement: How Rising Inequality Curbs Manifested Welfare Generosity
Erling Barth, Henning Finseraas & Karl Moene
American Journal of Political Science, forthcoming
Abstract:
We propose a political reinforcement hypothesis, suggesting that rising inequality moves party politics on welfare state issues to the right, strengthening rather than modifying the impact of inequality. We model policy platforms by incorporating ideology and opportunism of party members and interests and sympathies of voters. If welfare spending is a normal good within income classes, a majority of voters moves rightward when inequality increases. As a response, the left, in particular, shift their welfare policy platform toward less generosity. We find support for our arguments using data on the welfare policy platforms of political parties in 22 OECD countries.
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Jealous of the Joneses: Conspicuous consumption, inequality, and crime
Daniel Hicks & Joan Hamory Hicks
Oxford Economic Papers, October 2014, Pages 1090-1120
Abstract:
Empirical research on the relationship between economic inequality and crime has focused on income inequality, despite the fact that income is not easily observed by potential criminals. We extend this literature by shifting the focus from income to its visible manifestation — conspicuous consumption. Using variation within US states over time, we document a robust association between the distribution of conspicuous consumption and violent crime. Our results link violent crime to inequality in visible expenditure, but not to inequality in total expenditure, suggesting that information plays a key role in the determination of crime. Furthermore, focusing on conspicuous expenditure allows for new tests of competing theories of crime. Our findings are consistent with social theories that link crime with relative deprivation, but provide little support for traditional economic theory.
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Affirmative Action and Human Capital Investment: Evidence from a Randomized Field Experiment
Christopher Cotton, Brent Hickman & Joseph Price
NBER Working Paper, August 2014
Abstract:
The empirical literature on Affirmative Action (AA) in college admissions tends to ignore the effects admissions policies have on incentives of students to invest developing pre-college human capital. We explore the incentive effects of AA using a field experiment that creates a microcosm of the college admissions market. Our experimental design is based on the asymmetric, multi-object, all-pay auction framework in Bodoh-Creed and Hickman (2014). We pay 5th through 8th grade students based on their performance on a national mathematics exam relative to other competitor students, and observe the use of a study website as students prepare for the exam. An AA treatment favors "disadvantaged" students by reserving prizes for lower grade students who on average have less mathematics training and practice. We find that the AA policy significantly increases both average time investment and subsequent math achievement scores for disadvantaged students. At the same time, we find no evidence that it weakens average human capital investment incentives for advantaged students. We also find strong evidence that AA can narrow achievement gaps while promoting greater equality of market outcomes.
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Matthew Miles
Social Science Journal, forthcoming
Abstract:
Though majorities of Americans express support for redistributive tax policies as a cure for income inequality in the United States, this general support tends to dissipate when the public evaluates their support for specific proposals. The dominant explanations emphasize elite behavior and the disconnect between American values and political representation. An alternative view is that this counter-intuitive finding is entirely consistent with individual values. Some people place higher priority on policy processes than policy outcomes. This paper demonstrates that conservatives think about redistributive tax policy differently than liberals. Conservative support (opposition) for redistributive taxes is based on evaluations of the fairness of processes of government that lead to economic inequality. When conservatives believe that these processes are not fair, they are very supportive of wealth redistribution as a cure for economic inequality, whereas liberal support for wealth redistribution is more outcome-dependent.
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Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens
Martin Gilens & Benjamin Page
Perspectives on Politics, September 2014, Pages 564-581
Abstract:
Each of four theoretical traditions in the study of American politics — which can be characterized as theories of Majoritarian Electoral Democracy, Economic-Elite Domination, and two types of interest-group pluralism, Majoritarian Pluralism and Biased Pluralism — offers different predictions about which sets of actors have how much influence over public policy: average citizens; economic elites; and organized interest groups, mass-based or business-oriented. A great deal of empirical research speaks to the policy influence of one or another set of actors, but until recently it has not been possible to test these contrasting theoretical predictions against each other within a single statistical model. We report on an effort to do so, using a unique data set that includes measures of the key variables for 1,779 policy issues. Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence. The results provide substantial support for theories of Economic-Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism.
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Campaign Finance Laws, Policy Outcomes, and Political Equality in the American States
Patrick Flavin
Political Research Quarterly, forthcoming
Abstract:
Laws that regulate the financing of campaigns are one attempt to attenuate the role of money in politics and promote more egalitarian policy outcomes. Do states with stricter campaign finance regulations represent citizens’ interests more equally? Using data on state spending priorities from 1977 to 2008, this article finds that states with stricter campaign finance laws devote a larger proportion of their annual budget to public welfare spending in general and to cash assistance programs in particular. In contrast, there is no relationship between the strictness of campaign finance laws and spending decisions for non-redistributive policy areas. I also investigate possible causal mechanisms and uncover evidence that stricter campaign finance laws alter incentives for candidates to respond to wealthy constituents by lessening the proportion of contributions that originate from business interests. These results suggest that laws that regulate the financing of political campaigns can play an important role in promoting the interests of disadvantaged citizens and enhancing political equality.
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Lobbying Regulations and Political Equality in the American States
Patrick Flavin
American Politics Research, forthcoming
Abstract:
Laws that regulate the conduct of professional lobbyists in statehouses across the nation are one attempt to ensure that citizens’ opinions receive more equal consideration when elected officials make policy decisions. Do states with stricter lobbying regulations actually display more egalitarian patterns of political representation? Using public opinion measures from the National Annenberg Election Surveys and data on state policies, this article first demonstrates that state policy decisions are consistently more proximate to the opinions of affluent citizens. I then evaluate the relationship between the stringency of state lobbying regulations and representational equality across the states and find evidence that states with stricter regulations weigh citizens’ opinions more equally in the policymaking process. These findings suggest that lobbying regulations can play an important role in promoting greater political equality.
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When Do the Rich Vote Less Than the Poor and Why? Explaining Turnout Inequality across the World
Kimuli Kasara & Pavithra Suryanarayan
American Journal of Political Science, forthcoming
Abstract:
The conventional wisdom that the poor are less likely to vote than the rich is based upon research on voting behavior in advanced industrialized countries. However, in some places, the relationship between turnout and socioeconomic status is reversed. We argue that the potential tax exposure of the rich explains the positive relationship between income and voting in some places and not others. Where the rich anticipate taxation, they have a greater incentive to participate in politics, and politicians are more likely to use fiscal policy to gain support. We explore two factors affecting the tax exposure of the rich — the political salience of redistribution in party politics and the state's extractive capacity. Using survey data from developed and developing countries, we demonstrate that the rich turn out to vote at higher rates when the political preferences of the rich and poor diverge and where bureaucratic capacity is high.
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Erling Barth et al.
NBER Working Paper, September 2014
Abstract:
This paper links data on establishments and individuals to analyze the role of establishments in the increase in inequality that has become a central topic in economic analysis and policy debate. It decomposes changes in the variance of ln earnings among individuals into the part due to changes in earnings among establishments and the part due to changes in earnings within-establishments and finds that much of the 1970s-2010s increase in earnings inequality results from increased dispersion of the earnings among the establishments where individuals work. It also shows that the divergence of establishment earnings occurred within and across industries and was associated with increased variance of revenues per worker. Our results direct attention to the fundamental role of establishment-level pay setting and economic adjustments in earnings inequality.
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Paragon or Pariah? The Consequences of Being Conspicuously Rich in China’s New Economy
Michael Firth et al.
Journal of Corporate Finance, forthcoming
Abstract:
In some cultures vast personal wealth is lauded whereas in others, it is viewed with suspicion and contempt. In recent years, a super rich elite of business people has emerged in China, and, given the country’s cultural and socialist past, we believe people are more likely to react negatively to reports of conspicuous wealth. To test our arguments, we examine the reactions to and consequences of China’s entrepreneurs being included on the Hurun Rich List. We find negative consequences for stock market traded firms controlled by the Rich List entrepreneurs: stock prices decline, government subsidies are reduced, and the named entrepreneurs are more likely to be investigated. These effects are strongest in rent-seeking industries and are mitigated by philanthropy.
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Individualistic tendencies: When group status makes the difference
Vincenzo Iacoviello & Fabio Lorenzi-Cioldi
Group Processes & Intergroup Relations, forthcoming
Abstract:
In three studies, the authors investigated whether individualistic tendencies are contingent upon ingroup social status. Ingroup status was created using experimental procedures, and individualistic tendencies were assessed as preference for individualistic over collectivistic advertisement messages or preference for scarce over available products. It was predicted and found that (a) members of high-status groups emphasize individualistic tendencies compared to members of low-status groups, and that (b) this difference increases as a function of ingroup identification. Among highly identified participants, high-status group members held onto their individualistic tendencies, whereas low-status group members resolutely reduced these tendencies. The discussion addresses the role of group status in the emergence of individualistic self-conceptions and worldviews.
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Taxation and Top Incomes in Canada
Kevin Milligan & Michael Smart
NBER Working Paper, September 2014
Abstract:
We estimate the elasticity of reported income with respect to tax rates for high earners using subnational variation across Canadian provinces. We argue this allows for better identification of tax elasticities than the existing literature. We find that elasticities of reported income at the provincial level are large for incomes in the top one percent, but small for lower earners. There are strong indications that the response happens both through earned and capital income. While our estimated elasticities are large, changes in tax rates cannot explain much of the overall long-run trend of higher income concentration in Canada.
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Inequality Preservation through Uneven Diffusion of Cultural Materials across Stratified Groups
Neha Gondal
Social Forces, forthcoming
Abstract:
Inequality between groups is frequently maintained through the construction and legitimation of inter-group cultural differences. I draw on Blau's multiform heterogeneity and complex contagion models to theorize and develop a relational mechanism that shows how inequality can be preserved when additional, new bases of differentiating between groups layer over existing ones. I investigate the conditions under which variations in the distribution of the population across stratified groups and homophily of social networks along the stratifying attribute interact in such a way that a belief/practice diffuses widely in one group but not the other — an outcome referred to as differential diffusion. I also analyze how size of ego networks and adoption thresholds affect differential diffusion. Using mathematical and agent-based models, I find a positive correlation between adoption thresholds and homophily: when social networks are highly homophilous (e.g., race and socioeconomic class), uneven diffusion of non-normative behavior reproduces inequality; inclusive networks (e.g., in diverse city schools), in contrast, reestablish inequality through differential diffusion of low-risk behavior. This suggests that cultivating diversity is likely to mitigate inequality preservation in conservative situations where adoption of new beliefs/practices needs considerable affirmation. Encouraging status-based solidarity is more appropriate in receptive contexts where adoption of new behaviors entails comparatively lower risk. The results also imply that analyses of diffusion need to be sensitive to contextual factors, including homophily, cultural institutionalization of the diffusing material, and population distribution. Finally, I extend Ridgeway's seminal work to show how relational structure can not only construct status hierarchies but also contribute to their symbolic maintenance.
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Equity theory and fair inequality: A neuroeconomic study
Alexander Cappelen et al.
Proceedings of the National Academy of Sciences, forthcoming
Abstract:
The present paper reports results from, to our knowledge, the first study designed to examine the neuronal responses to income inequality in situations in which individuals have made different contributions in terms of work effort. We conducted an experiment that included a prescanning phase in which the participants earned money by working, and a neuronal scanning phase in which we examined how the brain responded when the participants evaluated different distributions of their earnings. We provide causal evidence for the relative contribution of work effort being crucial for understanding the hemodynamic response in the brain to inequality. We found a significant hemodynamic response in the striatum to deviations from the distribution of income that was proportional to work effort, but found no effect of deviations from the equal distribution of income. We also observed a striking correlation between the hemodynamic response in the striatum and the self-reported evaluation of the income distributions. Our results provide, to our knowledge, the first set of neuronal evidence for equity theory and suggest that people distinguish between fair and unfair inequalities.
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Resolution of the Happiness–Income Paradox
Zee Ma & Ye Zhang
Social Indicators Research, November 2014, Pages 705-721
Abstract:
It is widely believed that happiness is strongly correlated with wealth and income, but according to the happiness–income paradox, this is not always true. The paradox predicates that there is a strong positive correlation between income and happiness nationally, but the correlation is essentially absent in international comparisons, or in a long-term longitudinal comparison. This paradox has been widely debated among economists and the controversy has persisted for several decades. In this article, the happiness–income paradox is explained in terms of ecological correlation due to spatial aggregation or data-grouping, change of reference classes, and confounding variables. The controversy is resolved when ecological correlations and third-variable effects are accounted for. At the individual level, happiness and income are correlated positively, but not as strongly as many believe. In international comparisons, happiness and income are, in general, quite strongly correlated as well, contrary to what Easterlin (Nations and households in economic growth: essays in honor of Moses Abramovitz, Academic Press, New York, 1974) claimed and similar to what others have found, but for different reasons. Long-term comparison is also related to ecological correlation, but it is related to the change of reference classes as well.
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Income inequality, poverty and crime across nations
Paul-Philippe Pare & Richard Felson
British Journal of Sociology, September 2014, Pages 434–458
Abstract:
We examine the relationship between income inequality, poverty, and different types of crime. Our results are consistent with recent research in showing that inequality is unrelated to homicide rates when poverty is controlled. In our multi-level analyses of the International Crime Victimization Survey we find that inequality is unrelated to assault, robbery, burglary, and theft when poverty is controlled. We argue that there are also theoretical reasons to doubt that the level of income inequality of a country affects the likelihood of criminal behaviour.
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Bequests and family traditions: The case of nineteenth century France
Luc Arrondel & Cyril Grange
Review of Economics of the Household, September 2014, Pages 439-459
Abstract:
Like father, like son: is the bequest behavior of children “inherited” from that of their parents? Most economic models (altruistic, paternalistic or exchange models) postulate that bequest behavior does not depend per se on parents’ behavior. Yet because of data limitations, few empirical studies have analyzed the link between bequests left and inheritances received. In this paper, we evaluate the effect of inheritance relative to lifetime income on the amount that individuals bequeath, in the case of France. This study uses original historical data including wealth genealogies covering the nineteenth and first half of the twentieth centuries for the Loire Inférieure département. Empirical evidence suggests that the propensity to bequeath is much greater for inheritance than for human resources: a deceased having inherited twice the average wealth leaves 35–60 % more to his own heirs that the average for his generation. In nineteenth century France, bequests are explained more by inheritance received than by personal savings per se.