The nexus between perceptions of inequality and preferences for redistribution

Roberto Iacono () and Marco Ranaldi

The Journal of Economic Inequality, 2021, vol. 19, issue 1, No 6, 97-114

Abstract: Abstract This paper shows that perceptions of inequality are a key factor in the formation of preferences for redistribution and thereby in the determination of the equilibrium redistribution level. We build on the novel stylized facts provided by the survey experimental literature on perceptions of income inequality, highlighting that agents incorrectly estimate the shape of the income distribution because of limited information. Agents with income above the mean believe they are poorer than they actually are, and agents with income below the mean believe themselves to be richer. We revisit the standard framework on the political economy of redistribution and extend it in two ways. First, we introduce a more general two-sided inequality aversion. Second, we incorporate perceptions of income inequality, modeled by assuming that agents form expectations on the income level of the richest and the poorest in society. We show analytically that the equilibrium redistribution level is crucially determined by the interplay between the information treatment correcting the bias in perceptions of inequality and fairness considerations specified by the degree of inequality aversion. By doing this, we add (biased) perceptions of inequality to the list of potential factors explaining why, notwithstanding high inequality, an increase in the desire for redistribution has not been observed in many countries.

Keywords: Meltzer-Richard model; Perceived inequality; Inequality aversion; Redistributive preferences (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://link.springer.com/10.1007/s10888-020-09470-7 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Perceptions of Inequality and Redistribution: A Note (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:joecin:v:19:y:2021:i:1:d:10.1007_s10888-020-09470-7

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10888

DOI: 10.1007/s10888-020-09470-7

Access Statistics for this article

The Journal of Economic Inequality is currently edited by Stephen Jenkins

More articles in The Journal of Economic Inequality from Springer, Society for the Study of Economic Inequality Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().