Inequality aversion predicts support for public and private redistribution

Thomas F. Epper, Ernst Fehr, Claus Thustrup Kreiner, Søren Leth-Petersen, Isabel Skak Olufsen and Peer Skov
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Thomas F. Epper: b Center for Economic Behavior and Inequality, Department of Economics , University of Copenhagen , 1353 Copenhagen , Denmark
Claus Thustrup Kreiner: b Center for Economic Behavior and Inequality, Department of Economics , University of Copenhagen , 1353 Copenhagen , Denmark
Søren Leth-Petersen: b Center for Economic Behavior and Inequality, Department of Economics , University of Copenhagen , 1353 Copenhagen , Denmark
Isabel Skak Olufsen: b Center for Economic Behavior and Inequality, Department of Economics , University of Copenhagen , 1353 Copenhagen , Denmark

Proceedings of the National Academy of Sciences, 2024, vol. 121, issue 39, e2401445121

Abstract:

Rising inequality has brought redistribution back on the political agenda. In theory, inequality aversion drives people’s support for redistribution. People can dislike both advantageous inequality (comparison relative to those worse off) and disadvantageous inequality (comparison relative to those better off). Existing experimental evidence reveals substantial variation across people in these preferences. However, evidence is scarce on the broader role of these two distinct forms of inequality aversion for redistribution in society. We provide evidence by exploiting a unique combination of data. We use an incentivized experiment to measure inequality aversion in a large population sample (≈9,000 among 20- to 64-y-old Danes). We link the elicited inequality aversion to survey information on individuals’ support for public redistribution (policies that reduce income differences) and administrative records revealing their private redistribution (real-life donations to charity). In addition, the link to administrative data enables us to include a large battery of controls in the empirical analysis. Theory predicts that support for public redistribution increases with both types of inequality aversion, while private redistribution should increase with advantageous inequality aversion, but decrease with disadvantageous inequality aversion. A strong dislike for disadvantageous inequality makes people willing to sacrifice own income to reduce the income of people who are better off, thereby reducing the distance to people with more income than themselves. Public redistribution schemes achieve this but private donations to charity do not. Our empirical results provide strong support for these predictions and with quantitatively large effects compared to other predictors.

Keywords: inequality aversion; redistribution; charitable donation; social preferences; altruism (search for similar items in EconPapers)
Date: 2024
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