Rise and fall

Kevin Lewis

December 09, 2016

Social Mobility and Support for Redistribution: Separating the American Dream from Policy Preferences

Michael George

Harvard Working Paper, October 2016

This study examines the extent to which upward social mobility impacts beliefs about inequality and preferences for redistribution and taxation. A novel survey experiment and analysis of two national surveys (1993-2012) establish that there is little to no relationship between perceived or actual rates of social mobility and an individual's preferences for redistribution, taxation of the rich, or a variety of other policies examined, like educational spending. Despite this, local social mobility has a significant relationship with preferences for the Republican party in the national survey data and the survey experiment. This finding is then confirmed in an analysis of Presidential electoral results, where the strong relationship between social mobility and Republican party preference surpasses that of income and income inequality over three decades (1980-2012). Importantly, this partisan effect does not interact with income: regardless of their own income, individuals are more Republican wherever low-income children do well. Finally, rather than universal overestimation, new survey evidence suggests that Americans possess relatively accurate perceptions of local rates of economic mobility. Together, these results provide an empirical rebuttal to conventional models of the Meltzer-Richard voting framework and its prospect of upward mobility (POUM) variant, which argues that preferences for redistribution depend on beliefs about future gains or losses from taxation. Instead, this evidence suggests that attitudes toward redistribution and related policies are not strongly impacted by beliefs in upward economic mobility, which implies that resistance to greater redistribution may not be driven by unmerited belief in the 'American dream.'


Taxing the Rich More: Preliminary Evidence from the 2013 Tax Increase

Emmanuel Saez

NBER Working Paper, November 2016

This paper provides preliminary evidence on behavioral responses to taxation around the 2013 tax increase that raised top marginal tax rates on capital income by about 9.5 points and on labor income by about 6.5 points. Using published tabulated tax statistics from the Statistics of Income division of the IRS, we find that reported top 1% incomes were significantly higher in 2012 than in 2013, implying a large short-run elasticity of reported income with respect to the net-of-tax rate in excess of one. This large short-run elasticity is due to income retiming for tax avoidance purposes and is particularly high for realized capital gains and dividends, and highest at the very top of the income distribution. However, comparing 2011 and 2015 top incomes uncovers only a small medium-term response to the tax increase as top income shares resumed their upward trend after 2013. Overall, we estimate that at most 20% of the projected tax revenue increase from the 2013 tax reform is lost through behavioral responses. This implies that the 2013 tax increase was an efficient way to raise revenue.


Do Anti-Union Policies Increase Inequality? Evidence from State Adoption of Right-to-Work Laws

Vladimir Kogan

State Politics & Policy Quarterly, forthcoming

The distribution of income lies at the intersection of states and markets, both influencing and responding to government policy. Reflecting this reality, increasing research focuses on the political origins of inequality in the United States. However, the literature largely assumes - rather than tests - the political mechanisms thought to affect the income gap. This study provides a timely reassessment of one such mechanism. Leveraging variation in labor laws between states and differences in the timing of adoption of right-to-work (RTW) legislation, I examine one political mechanism blamed by many for contributing to inequality. Using a variety of panel designs, I find little evidence that RTW laws have been a major cause of growing income inequality, pointing to the importance of grounding theoretical arguments about the interrelationships between states and markets in a sound empirical reality.


The Fading American Dream: Trends in Absolute Income Mobility Since 1940

Raj Chetty et al.

Stanford Working Paper, December 2016

We estimate rates of "absolute income mobility" - the fraction of children who earn more than their parents - by combining historical data from Census and CPS cross-sections with panel data for recent birth cohorts from de-identified tax records. Our approach overcomes the key data limitation that has hampered research on trends in intergenerational mobility: the lack of large panel datasets linking parents and children. We find that rates of absolute mobility have fallen from approximately 90% for children born in 1940 to 50% for children born in the 1980s. The result that absolute mobility has fallen sharply over the past half century is robust to the choice of price deflator, the definition of income, and accounting for taxes and transfers. In counterfactual simulations, we find that increasing GDP growth rates alone cannot restore absolute mobility to the rates experienced by children born in the 1940s. In contrast, changing the distribution of growth across income groups to the more equal distribution experienced by the 1940 birth cohort would reverse more than 70% of the decline in mobility. These results imply that reviving the "American Dream" of high rates of absolute mobility would require economic growth that is spread more broadly across the income distribution.


Income Inequality, Income, and Internet Searches for Status Goods: A Cross-National Study of the Association Between Inequality and Well-Being

Lukasz Walasek & Gordon Brown

Social Indicators Research, December 2016, Pages 1001-1014

Is there a positive association between a nation's income inequality and concerns with status competition within that nation? Here we use Google Correlate and Google Trends to examine frequency of internet search terms and find that people in countries in which income inequality is high search relatively more frequently for positional brand names such as Prada, Louis Vuitton, or Chanel. This tendency is stronger among well-developed countries. We find no evidence that income alone is associated with searches for positional goods. We also present evidence that the concern with positional goods does not reflect non-linear effects of income on consumer spending, either across nations or (extending previous findings that people who live in unequal US States search more for positional goods) within the USA. It is concluded that income inequality is associated with greater concerns with positional goods, and that this concern is reflected in internet searching behaviour.


Housing Demand, Cost-of-Living Inequality, and the Affordability Crisis

David Albouy, Gabriel Ehrlich & Yingyi Liu

NBER Working Paper, November 2016

Since 1970, housing's relative price, share of expenditure, and "unaffordability" have all grown. We estimate housing demand using a novel compensated framework over space and an uncompensated framework over time. Our specifications pass tests imposed by rationality and household mobility. Housing demand is income and price inelastic, and appears to fall with household size. We provide a numerical non-homothetic constant elasticity of substitution utility function for improved quantitative modeling. An ideal cost-of-living index demonstrates that the poor have been disproportionately impacted by rising relative rents, which have greatly amplified increases in real income inequality.


Can We Have Our Cake and Eat it Too? Liberalization, Economic Growth, and Income Inequality in Advanced Industrial Societies

Roy Kwon

Social Forces, December 2016, Pages 469-502

Conventional economic wisdom maintains that liberalization is partially responsible for the recent expansion of income inequality in advanced industrial societies. Yet the empirical evidence is far from conclusive, as some scholars find a robust positive association between liberalization and inequality, while others uncover a significant negative association between these variables. This study attempts to engage with this burgeoning field of research in order to clarify the empirical link between liberalization, economic growth, and income inequality. To achieve this objective, the current study compiles a panel data set of twenty-one developed economies during the years 1970 to 2009. According to the findings, liberalization returns a consistent positive connection with the pretransfer Gini coefficient using a range of regression parameters and robustness checks. Furthermore, although there is some support for the contention that liberalization indirectly decreases inequality by expanding economic growth, these results are far from conclusive as the findings are inconsistent across different equations. In conclusion, the results largely support conventional wisdom as economic liberalization is found to be a positive predictor of income inequality in advanced industrial societies.


Technology, Capitalism, Growth, and Inequality

James Holmes, John Holmes & Patricia Hutton

State University of New York Working Paper, September 2016

Economic history suggests that technological innovations with long productivity delays contributed to the emergence of corporations. We develop a formal theory explaining the transition from self-employed proprietors to corporations in a competitive economy and show how the dynamics of economic growth and income inequality are influenced by the adoption of innovations with productivity delays by both types of institutional arrangements. We demonstrate that the predictions for economic growth and income inequality are supported by a wide range of empirical evidence, and conclude that corporations are a force for both economic growth and income equality.


Unequal views of inequality: Cross-national support for redistribution 1985-2011

Tom VanHeuvelen

Social Science Research, forthcoming

This research examines public views on government responsibility to reduce income inequality, support for redistribution. While individual-level correlates of support for redistribution are relatively well understood, many questions remain at the country-level. Therefore, I examine how country-level characteristics affect aggregate support for redistribution. I test explanations of aggregate support using a unique dataset combining 18 waves of the International Social Survey Programme and European Social Survey. Results from mixed-effects logistic regression and fixed-effects linear regression models show two primary and contrasting effects. States that reduce inequality through bundles of tax and transfer policies are rewarded with more supportive publics. In contrast, economic development has a seemingly equivalent and dampening effect on public support. Importantly, the effect of economic development grows at higher levels of development, potentially overwhelming the amplifying effect of state redistribution. My results therefore suggest a fundamental challenge to proponents of egalitarian politics.


Democracy, Inequality, and Institutional Quality

Rainer Kotschy & Uwe Sunde

European Economic Review, January 2017, Pages 209-228

Contrary to a widespread perception, there exists little evidence on the question as to whether the beneficial effect of democracy on the quality of economic institutions is eroded by excessive inequality. This article provides evidence from a variety of panel data models that documents a significant interaction between political institutions and inequality in determining the quality of economic institutions. This suggests that democracy is not necessarily associated with high quality institutions. The empirical results suggest that excessively high levels of inequality erode institutional quality even in democracies, up to the point that democracies appear not to be able to implement good institutional environments if inequality is too high.


Social comparison, personal relative deprivation, and materialism

Hyunji Kim et al.

British Journal of Social Psychology, forthcoming

Across five studies, we found consistent evidence for the idea that personal relative deprivation (PRD), which refers to resentment stemming from the belief that one is deprived of deserved outcomes compared to others, uniquely contributes to materialism. In Study 1, self-reports of PRD positively predicted materialistic values over and above socioeconomic status, personal power, self-esteem, and emotional uncertainty. The experience of PRD starts with social comparison, and Studies 2 and 3 found that PRD mediated the positive relation between a tendency to make social comparisons of abilities and materialism. In Study 4, participants who learned that they had less (vs. similar) discretionary income than people like them reported a stronger desire for more money relative to donating more to charity. In Study 5, during a windfall-spending task, participants higher in PRD spent more on things they wanted relative to other spending categories (e.g., paying off debts).


Movin' on Up? How Perceptions of Social Mobility Affect Our Willingness to Defend the System

Martin Day & Susan Fiske

Social Psychological and Personality Science, forthcoming

People's motivation to rationalize and defend the status quo is a major barrier to societal change. Three studies tested whether perceived social mobility - beliefs about the likelihood to move up and down the socioeconomic ladder - can condition people's tendency to engage in system justification. Compared to information suggesting moderate social mobility, exposure to low social mobility frames consistently reduced defense of the overarching societal system. Two studies examined how this effect occurs. Compared to moderate or baseline conditions, a low social mobility frame reduced people's endorsement of (typically strong) meritocratic and just-world beliefs, which in turn explained lower system defense. These effects occurred for political liberals, moderates, and conservatives and could not be explained by other system-legitimizing ideologies or people's beliefs about their own social mobility. Implications for societal change programs are discussed.


The Rich Get Richer and the Poor Get Poorer: Country- and State-Level Income Inequality Moderates the Job Insecurity-Burnout Relationship

Lixin Jiang & Tahira Probst

Journal of Applied Psychology, forthcoming

Despite the prevalence of income inequality in today's society, research on the implications of income inequality for organizational research is scant. This study takes the first step to explore the contextual role of national- and state- level income inequality as a moderator in the relationship between individual-level job insecurity (JI) and burnout. Drawing from conservation of resource (COR) theory, we argue that income inequality at the country-level and state-level threatens one's obtainment of object (i.e., material coping) and condition (i.e., nonmaterial coping) resources, thus serving as an environmental stressor exacerbating one's burnout reactions to JI. The predicted cross-level interaction effect of income inequality was tested in 2 studies. Study 1 consisting of 23,778 individuals nested in 30 countries explored the moderating effect of country-level income inequality on the relationship between individual JI and exhaustion. Study 2 collected data from 402 employees residing in 48 states in the United States, and tested the moderating effect of state-level income inequality on the relationship between JI and burnout (i.e., emotional exhaustion and cynicism). Results of both studies converge to support the exacerbating role of higher-level income inequality on the JI -burnout relationship. Our findings contribute to the literature on psychological health disparities by exploring the contextual role of income inequality as a predictor of differential reactions to JI.


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