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The Effect of Aspirations on Inequality: Evidence from the German Reunification using Bayesian Growth Incidence Curves

Edwin Fourrier-Nicolaï and Michel Lubrano ()
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Michel Lubrano: School of Economics, Jiangxi University of Finance and Economics & Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE, https://www.amse-aixmarseille.fr/fr/membres/lubrano

No 1914, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: A long-standing literature has investigated the formation of aspirations and how they shape human behaviours but a recent interest has been devoted on the interplay between aspirations and inequality. Because aspirations are socially determined, household investment decisions tend to be reproduced according to the social context which fosters inequality to persist. We empirically examine the role of aspirations on inequality using a natural experiment. We exploit an exogenous variation of social aspirations determined by the exposure to Western German TV broadcasts in the GDR before the reunification. We measure the treatment effect on wage inequality by comparing inequality changes between the treatment and the control regions after reunification. We use an heteroskedastic parametric model for income with a treatment effect and sample selection into the labour market. We derive analytical formulae for the growth incidence curve of Ravallion and Chen (2003) and poverty growth curve of Son (2004) for the log-normal distribution. Based on those curves, we provide Bayesian inference and a set of tests related to stochastic dominance criteria. We find evidences that aspirations-through exposure to Western German broadcasts-have significantly affected inequality. We find that this effect was detrimental in terms of inequality and poverty. However, we cannot conclude about the persistence of the effect after 1995.

Keywords: Inequality; social aspirations; Bayesian inference; treatment effect (search for similar items in EconPapers)
JEL-codes: D31 D91 C11 C21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eur
Date: 2019-02
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