Knowledge is Power: A Theory of Information, Income and Welfare Spending
Jo Thori Lind & Dominic Rohner
Economica, October 2017, Pages 611–646
No voters cast their votes based on perfect information, but richer voters are on average best informed. We develop a model where the voting mistakes resulting from low political knowledge reduce the weight of poor voters, and cause parties to choose political platforms that are better aligned with the preferences of rich voters. In US election survey data, income is more important in affecting voting behaviour for more informed voters than for less informed voters. Further, when there is a strong correlation between income and political information, Congress representatives vote more conservatively, which is also in line with our theory.
Testing Models of Unequal Representation: Democratic Populists and Republican Oligarchs?
Jesse Rhodes & Brian Schaffner
Quarterly Journal of Political Science, September 2017, Pages 185-204
Recent studies indicate that the wealthy receive more representation from their members of Congress, though this relationship may be more pronounced in Republican compared to Democratic districts. However, drawbacks in existing survey data hamper efforts to delineate the relationship between income and representation with precision, especially at the highest income levels. In this paper we use new data to explore the relationship between wealth, the party identity of elected officials, and representation in greater depth. We develop several alternative models of the relationship between income and representation, and compare them with models employed in previous empirical research. We test each of these models, using two different data sets containing large numbers of wealthy individuals and very granular measures of income. Our results suggest that individuals with Democratic congressional representatives experience a fundamentally different type of representation than do individuals with Republican representatives. Individuals with Democratic representatives encounter a mode of representation best described as "populist," in which the relationship between income and representation is flat (if not negative). However, individuals with Republican representatives experience an "oligarchic" mode of representation, in which wealthy individuals receive much more representation than those lower on the economic ladder.
Increasing Inequality in Parent Incomes and Children’s Schooling
Greg Duncan, Ariel Kalil & Kathleen Ziol-Guest
Income inequality and the achievement test score gap between high- and low-income children increased dramatically in the United States beginning in the 1970s. This article investigates the demographic (family income, mother’s education, family size, two-parent family structure, and age of mother at birth) underpinnings of the growing income-based gap in schooling using data from the Panel Study of Income Dynamics. Across 31 cohorts, we find that increases in the income gap between high- and low-income children account for approximately three-quarters of the increasing gap in completed schooling, one-half of the gap in college attendance, and one-fifth of the gap in college graduation. We find no consistent evidence of increases in the estimated associations between parental income and children’s completed schooling. Increasing gaps in the two-parent family structures of high- and low-income families accounted for relatively little of the schooling gap because our estimates of the (regression-adjusted) associations between family structure and schooling were surprisingly small for much of our accounting period. On the other hand, increasing gaps in mother’s age at the time of birth accounts for a substantial portion of the increasing schooling gap: mother’s age is consistently predictive of children’s completed schooling, and the maternal age gap for children born into low- and high-income families increased considerably over the period.
Inequality and Philanthropy: High-Income Giving in the United States 1917-2016
University of Southern California Working Paper, August 2017
From 1917 to 2016, donations by high-income households in the USA have moved inversely with income inequality. This association contradicts historical narratives and prevailing theory, both of which that imply that high-income households donate rising income shares when inequality increases. The negative correlation holds both unconditionally and after conditioning on other explanatory variables, at both the national and US state levels. Low payout ratios of foundations and endowed charities, combined with this observed relationship, imply that differences in charitable giving will tend to entrench, not reduce, inequality across places over time.
Local Neighbors As Positives, Regional Neighbors As Negatives: Competing Channels In The Relationship Between Others’ Income, Health, And Happiness
John Ifcher, Homa Zarghamee & Carol Graham
Journal of Health Economics, forthcoming
That well-being is decreasing in others’ income is termed the “relative income hypothesis” (RIH) by scholars of subjective well-being (SWB) and has substantial empirical support. Some studies, however, present evidence of both positive and negative explanatory channels in the relationship between others’ income and SWB. We develop a theoretical framework integrating four distinct channels through which neighbors’ income can affect utility: public goods, cost of living, expectations of future income, and direct effects (RIH or altruism). We estimate the relationship with SWB data from the U.S. Gallup-Healthways Well-Being Index and median-income data from the American Community Survey for ZIP codes and MSAs. The relationship is proximity-dependent: positive (negative) when using ZIP-code (MSA) median income as reference income, suggesting that positive (negative) channels dominate locally (regionally) and reconciling the literature’s seemingly divergent results. These findings are consistent across SWB measures and many health-related indices. Additional analyses support the public-goods and costof-living channels.
The effect of culture on fiscal redistribution: Evidence based on genetic, epidemiological and linguistic data
Pantelis Kammas, Pantelis Kazakis & Vassilis Sarantides
Economics Letters, November 2017, Pages 95-99
Using a set of innovative instruments we investigate the effect of collectivist culture on fiscal redistribution. Our analysis suggests that societies characterized by less collectivistic culture present higher levels of fiscal redistribution, as proxied by government subsidies and transfers as well as health and education expenses.
The role of social status and testosterone in human conspicuous consumption
Yin Wu et al.
Scientific Reports, September 2017
Conspicuous consumption refers to the phenomenon where individuals purchase goods for signalling social status, rather than for its inherent functional value. This study (n = 166 male participants) investigated how the outcome of a social competition influenced conspicuous consumption, and its association with competition-induced testosterone reactivity. Winning a competition increased both explicit and implicit preferences for higher-status vs. lower-status products, using both natural stimuli (prestigious cars) and laboratory-tagged stimuli of matched value (university T-shirts). Competition also influenced behaviour in an Ultimatum Game, such that winners were more likely to reject unfair offers. Competition outcomes had no discernible influence upon salivary testosterone levels, and neither basal testosterone levels nor testosterone reactivity induced by competition predicted the conspicuous consumption measures. Our data indicate that winning a competition lead to more dominant behaviour, albeit in a manner that is not statistically regulated by testosterone, possibly through increased feeling of entitlement.
Persistent Heterogeneous Returns and Top End Wealth Inequality
Dan Cao & Wenlan Luo
Review of Economic Dynamics, forthcoming
We document in US data that returns to wealth across households are significantly heterogeneous, and persistently so. Motivated by this observation, we build a tractable general equilibrium model where households face persistent idiosyncratic returns to study the US wealth distribution. We show theoretically that the wealth distribution in the model admits a Pareto tail and characterize how the tail index depends on salient equilibrium variables including capital-output ratio, labor share, interest rate, and growth rate. Quantitatively, to match the observed US wealth distribution it requires significant heterogeneity in returns, consistent with our empirical findings. Finally, we show in the model that financial deregulation and a reduction in US corporate tax rates can generate the joint evolution of rising wealth inequality, rising capital-output ratio and declining labor share since the 1980s.
Wealthy Elites’ Policy Preferences and Economic Inequality: The Case of Technology Entrepreneurs
David Broockman, Greg Ferenstein & Neil Malhotra
Stanford Working Paper, September 2017
If wealthy businesspeople reliably support policies in their material self-interest, they can be expected to use their tremendous political influence to exacerbate inequality. We argue business elites in an industry can share distinctive values and predispositions which can override their self-interest. We demonstrate our argument with technology entrepreneurs, business elites with increasing wealth and political influence but who overwhelmingly support Democrats. To understand this puzzle, we conducted original surveys of elite technology entrepreneurs, elite partisan donors, and the public. We show that technology entrepreneurs’ predispositions toward racial tolerance, non-authoritarianism, and cosmopolitanism align them with Democrats in supporting liberal redistributive, social, and globalistic policies. However, they generally oppose regulation — but also for reasons that extend beyond self-interest alone. Our findings provide a rare window into a wealthy elite’s views that is both theoretically rich and politically relevant, providing nuance to expectations about the interplay between economic and political inequality.
Who Owns the Wealth in Tax Havens? Macro Evidence and Implications for Global Inequality
Annette Alstadsæter, Niels Johannesen & Gabriel Zucman
NBER Working Paper, September 2017
Drawing on newly published macroeconomic statistics, this paper estimates the amount of household wealth owned by each country in offshore tax havens. The equivalent of 10% of world GDP is held in tax havens globally, but this average masks a great deal of heterogeneity — from a few percent of GDP in Scandinavia, to about 15% in Continental Europe, and 60% in Gulf countries and some Latin American economies. We use these estimates to construct revised series of top wealth shares in ten countries, which account for close to half of world GDP. Because offshore wealth is very concentrated at the top, accounting for it increases the top 0.01% wealth share substantially in Europe, even in countries that do not use tax havens extensively. It has considerable effects in Russia, where the vast majority of wealth at the top is held offshore. These results highlight the importance of looking beyond tax and survey data to study wealth accumulation among the very rich in a globalized world.
How should we measure Americans’ perceptions of socio-economic mobility?
Lawton Swan et al.
Judgment and Decision Making, September 2017, Pages 507–515
Several scholars have suggested that Americans’ (distorted) beliefs about the rate of upward social mobility in the United States may affect political judgment and decision-making outcomes. In this article, we consider the psychometric properties of two different questionnaire items that researchers have used to measure these subjective perceptions. Namely, we report the results of a new set of experiments (N = 2,167 U.S. MTurkers) in which we compared the question wording employed by Chambers, Swan and Heesacker (2015) with the question wording employed by Davidai and Gilovich (2015). Each (independent) research team had prompted similar groups of respondents to estimate the percentage of Americans born into the bottom of the income distribution who improved their socio-economic standing by adulthood, yet the two teams reached ostensibly irreconcilable conclusions: that Americans tend to underestimate (Chambers et al.) and overestimate (Davidai & Gilovich) the true rate of upward social mobility in the U.S. First, we successfully reproduced both contradictory results. Next, we isolated and experimentally manipulated one salient difference between the two questions’ response-option formats: asking participants to divide the population into either (a) “thirds” (tertiles) or (b) “20%” segments (quintiles). Inverting this tertile-quintile factor significantly altered both teams’ findings, suggesting that these measures are inappropriate (too vulnerable to question-wording and item-formulation artifacts) for use in studies of perceptual (in)accuracy. Finally, we piloted a new question for measuring subjective perceptions of social mobility. We conclude with tentative recommendations for researchers who wish to model the causes and consequences of Americans’ mobility-related beliefs.