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Redistribution, inequality, and growth: New evidence
Andrew Berg et al.
Journal of Economic Growth, September 2018, Pages 259–305
We investigate the relationship between inequality, redistribution, and growth using a recently-compiled dataset that distinguishes clearly between market (pre-tax and transfer) and net (post tax and transfer) inequality, and allows us to calculate redistributive transfers for a large number of advanced and developing countries. Across a variety of estimation methods, data samples, and robustness checks, we find: (1) lower net inequality is robustly correlated with faster and more durable growth, controlling for the level of redistribution; (2) redistribution appears benign in terms of its impact on growth, except when it is extensive; and (3) inequality seems to affect growth through human capital accumulation and fertility channels.
Inequality, Social Distance, and Giving
Nicolas Duquette & Enda Hargaden
University of Southern California Working Paper, July 2018
This paper demonstrates that economic inequality has a negative, causal effect on prosocial behavior, specifically, charitable giving. Standard theories predict that greater inequality increases giving, though income tax return data suggest the opposite may be true. We develop a new theory which, incorporating insights from behavioral economics and social psychology, predicts when greater inequality will lower charitable giving. We test the theory in an experiment on donations to a real-world charity. By randomizing the income distribution, we identify the effect of inequality on giving behavior. Consistent with our model, heightened inequality causes total giving to fall. Policy agendas that rely on charitable giving and other voluntary, prosocial behaviors to mitigate income and wealth inequality are likely to fail.
When Do the Advantaged See the Disadvantages of Others? A Quasi-Experimental Study of National Service
Cecilia Hyunjung Mo & Katharine Conn
American Political Science Review, forthcoming
Are there mechanisms by which the advantaged can see the perspectives of the disadvantaged? If advantaged individuals have prolonged engagement with disadvantaged populations and confront issues of inequality through national service, do they see the world more through the lens of the poor? We explore this question by examining Teach For America (TFA), as TFA is a prominent national service program that integrates top college graduates into low-income communities for two years and employs a selection model that allows for causal inference. A regression discontinuity approach, utilizing an original survey of over 32,000 TFA applicants and TFA’s selection data for the 2007–2015 application cycles, reveals that extended intergroup contact in a service context causes advantaged Americans to adopt beliefs that are closer to those of disadvantaged Americans. These findings have broad implications for our understanding of the impact of intergroup contact on perceptions of social justice and prejudice reduction.
Can Empathy Explain Gender Differences in Economic Policy Views in the United States?
Linda Kamas & Anne Preston
Feminist Economics, forthcoming
This paper shows that different levels of empathy of men and women explain the well-documented gender differences in interventionist government economic policy views in the United States. Using the Davis Interpersonal Reactivity Index (IRI) to measure empathy, the study finds that more empathic people support more interventionist policies. While greater empathy leads both men and women to support more government action, there is no gender difference in the effects of empathy on policy views. When policy views are separated by area, gender differences on policies concerning poverty, inequality, and social welfare disappear once empathy is accounted for, though they persist in views on free markets.
More Than They Realize: The Income of the Wealthy
Jenny Bourne et al.
National Tax Journal, June 2018, Pages 335-356
Income realized for tax or survey purposes usually understates economic income for the wealthy because capital income recognition is often voluntary. Using estate tax returns filed in 2007 linked with income tax returns from 2002 to 2006, we find realized returns to capital for most wealthy individuals are less than 2 percent, with the richest filers reporting the lowest returns. Because of tax preferences, taxable returns are even smaller than reported returns. Consequently, studies relying upon realized income tend to overstate tax progressivity, understate income inequality, and miscalculate the distribution of wealth when derived through income-capitalization techniques.
Inequality is Bad for Growth of the Poor (but Not for That of the Rich)
Roy van der Weide & Branko Milanovic
World Bank Economic Review, forthcoming
The paper investigates the relationship between income inequality and future income growth rates of households at different points of the income distribution. The analysis uses micro-census data from U.S. states covering the period from 1960 to 2010, and controls for exposure to imports from China and share of routine jobs, among other variables. It finds evidence that high levels of inequality reduce the income growth of the poor but, if anything, help the growth of the rich.
Long-run Effects of Lottery Wealth on Psychological Well-being
Erik Lindqvist, Robert Ostling & David Cesarini
NYU Working Paper, May 2018
We surveyed a large sample of Swedish lottery players about their psychological well-being and analyzed the data following pre-registered procedures. Relative to matched controls, large-prize winners experience sustained increases in overall life satisfaction that persist for over a decade and show no evidence of dissipating with time. The estimated treatment effects on happiness and mental health are significantly smaller, suggesting that wealth has greater long-run effects on evaluative measures of well-being than on affective ones. Follow-up analyses of domain-specific aspects of life satisfaction clearly implicate financial life satisfaction as an important mediator for the long-run increase in overall life satisfaction.
Diminished Expectations: Redistributive Preferences in Truncated Welfare States
World Politics, October 2018, Pages 555-594
The most basic assumption of redistributive politics is that the poor favor social welfare spending and the rich resist it. It follows that income predicts support for redistribution, and that the poor vote for politicians who champion it. But this theory of redistributive demand flops where it should operate most seamlessly — in Latin America, one of the most unequal regions of the world. Public opinion surveys show that the poor in Latin America are no more likely to support government efforts to reduce inequality than the nonpoor. Although inequalities in political power may explain why the poor are unable to enact welfare state expansions, such distortions can't explain the underlying puzzle about social demands: Why don't the poor want to soak the rich? Or, conversely, why do the rich support spending on the poor?
Income Stratification among Occupational Classes in the United States
Xiang Zhou & Geoffrey Wodtke
Social Forces, forthcoming
Stratification and inequality are among the most central concepts in sociology, and although related, they are fundamentally distinct: inequality refers to the extent to which resources are distributed unevenly across individuals or between population subgroups, whereas stratification refers to the extent to which population subgroups occupy distinct hierarchical layers within an overall resource distribution. Despite the centrality of stratification in theories of class structure, prior empirical studies have focused exclusively on measures of inequality, which do not accurately capture the degree of class stratification and suffer from a variety of methodological limitations. In this paper, we employ a novel rank-based index of stratification to measure the degree to which occupational classes inhabit distinct, non-overlapping, and hierarchically arranged layers in the distribution of personal market income. The stratification index is nonparametric, both scale and translation invariant, and independent of the level of inequality. Based on this index, our results show that the US income distribution is highly stratified by occupational class and that the degree of class stratification increased substantially from 1980 to 2016. Moreover, we find that this trend is almost entirely due to growing stratification among aggregate occupational classes rather than among the disaggregate occupations nested within them. Finally, a set of counterfactual analyses indicate that the rise of occupational class stratification is driven by increases in the income returns to education, deunionization, and deindustrialization, although the relative importance of these factors varies by gender.
Is It the Government’s Responsibility to Reduce Income Inequality? An Age-Period-Cohort Analysis of Public Opinion toward Redistributive Policy in the United States, 1978 to 2016
Ya-Feng Lin, Yoshinori Kamo & Tim Slack
Sociological Spectrum, May/June 2018, Pages 162-173
This study examines age, period, and cohort (APC) effects on changing opinions among the American public toward the federal government’s responsibility for income redistribution. More specifically, we use the hierarchical age–period–cohort (HAPC) model to analyze time periods and birth cohorts as contextual variables and age as an individual-level variable to address the identification problem inherent in APC analysis. Our results show that while cohort effects on public opinion toward redistributive policy exist, such effects are explained by individual-level compositional differences among cohorts, and while period effects are evident, particular trends in that regard are difficult to discern. What our results make abundantly clear, however, is the significant impact of age on opinions toward redistributive policy. As people age, they become significantly less supportive of federal redistribution policies, a relationship that is robust in the presence of cohort and period effects as well as a full range of controls. In the context of a rapidly aging population, the implication is that more conservative policy preferences linked to older age provide little reason to believe that mass support for government redistribution is in the offing.
Identifying Preferences for Equal College Access, Income, and Income Equality
Bernardo Lara & Kenneth Shores
Education Finance and Policy, forthcoming
Revealed preferences for equal college access may be due to beliefs that equal access increases societal income or income equality. To isolate preferences for those goods, we implement an online discrete choice experiment using social statistics generated from true variation among commuting zones. We find that, ceteris paribus, the average income that individuals are willing to sacrifice is (i) $4,984 dollars to increase higher education (HE) enrollment by 1 standard deviation (14%); (ii) $1,168 dollars to decrease rich/poor gaps in HE enrollment by 1 standard deviation (8%); (iii) $2,900 to decrease the 90/10 income inequality ratio by 1 standard deviation (1.66). In addition, we find that political affiliation is an important moderator of preferences for equality. While both Democrats and Republicans are willing to trade over $4,000 dollars to increase HE enrollment by 1 standard deviation, Democrats are willing to sacrifice nearly three times more income to decrease either rich/poor gaps in HE enrollment or the 90/10 income inequality ratio by 1 standard deviation.
More Unequal, but More Mobile? Earnings Inequality and Mobility in OECD Countries
Andrea Garnero, Alexander Hijzen & Sébastien Martin
Labour Economics, forthcoming
This paper provides comprehensive cross-country evidence on the relationship between earnings inequality and intra-generational mobility by simulating individual earnings and employment trajectories using short panels for 24 OECD countries. On average across countries, only 20% of earnings inequality in a given year evens out over the life cycle as a result of mobility. This suggests that the bulk of earnings inequality at a given time is permanent. Moreover, mobility and inequality are positively correlated across countries, suggesting that international differences in life-time inequality tend to be less pronounced than inequality differences in a given year. The positive correlation is largely driven by employment mobility – movements between employment and unemployment – and most pronounced in the bottom of the distribution.
Who sees an hourglass? Assessing citizens’ perception of local economic inequality
Benjamin Newman, Sono Shah & Erinn Lauterbach
Research & Politics, August 2018
The scholarly literature is observing a slow but steady growth in research exploring the effects of subnational economic inequality on political attitudes and behavior. Germane to this work is the assumption that citizens are aware of the level of inequality in their local residential context. At present, however, the evidence in support of this assumption is mixed. This article attempts to offer the literature improved tests of citizens’ awareness of local inequality by addressing a key limitation in past work — the discordance between the geographic unit underlying measures of the independent and dependent variables. Analyzing two national surveys employing a measure of perceived inequality scaled to the local level, the results suggest that citizens are indeed aware of the level of income inequality in their local environment and that the link between objective and perceived local inequality is most pronounced among lower income citizens.