Luck, Skill, and Redistribution

Many important political debates center on whether and how much government should redistribute wealth. There are some practical considerations that we should take into account in decisions about redistribution: how to tax, when to tax, closing loopholes, etc. Really though, decisions about redistribution depend primarily on important philosophical presuppositions. In particular, people have different willingness to support redistribution policies depending on their beliefs about the role of skill and luck in determining success. This post reviews some of the literature on settled and open questions on preferences for redistribution.

Review of settled and open questions on preferences for redistribution

Theoretical work on determinants of preferences for redistribution

Preferences for redistribution depend on:

  • reciprocity motives (Fong, Gintis, and Bowles, 2005)
  • externalities in crime and education (Alesina and Giuliano, 2009)
  • beliefs about fairness (Alesina and Giuliano, 2009)
  • beliefs about the roles of effort and luck (Alesina and Giuliano, 2009)
  • ex-ante anticipated tax policies (Alesina and Angeletos, 2005)
  • biased perceptions of inequality (Cruces et al., 2013)

Empirical work on determinants of preferences for redistribution
Based on survey data

Preferences for redistribution depend on:

  • belief that luck determines income (between individuals) (Fong, 2001; Linos and West, 2003)
  • belief that luck determines income (between countries) (Alesina and Angeletos, 2005)
  • belief in social mobility (Alesina and Ferrara, 2001)
  • belief in fairness of social mobility process (Alesina and Ferrara, 2001)
  • beliefs about inequality (Alesina and Glaeser, 2004; Olivera, 2013)
  • Demographics (Fong, 2001; Olivera, 2013; Ohtake and Tomioka, 2004), including:
    • income
    • gender
    • age
    • employment status
    • marital status
    • union membership
    • religion
    • race

Based on archival data analyses

Preferences for redistribution depend on:

  • redistribution policy of previous regime (Alesina and Fuchs, 2005)
    • East and West Germany have persistent differences in redistribution preferences
  • redistribution policy of neighboring regime (Buera et al., 2011)
    • countries adopt market policies from successful neighbors
  • employment status (Margalit, 2013)
    • people who lost jobs during the Recession are more likely to support redistribution
  • immigrants’ culture of origin (Luttmer, 2008)
    • immigrants have persistent preferences for redistribution despite new context
  • social capital (community participation rates) (Yamamura, 2012)
    • areas with high community participation rates have higher redistribution preferences
  • exposure to occupational risk (Cusack et al., 2006)
    • people and nations with high occupational risk prefer redistribution
  • social mobility (Gaviria et al., 2007)
    • countries with stronger correlation between parents’ and children’s education have stronger redistribution preferences
  • birth order (Yamamura, 2014)
    • more older male siblings correlate with stronger redistribution preferences

Based on experiments

Preferences for redistribution depend on:

  • information on inequality and taxes (Kuziemko et al., 2013)
  • ignorance about the future (Krawczyk, 2010; Horisch, 2010)
  • risk attitudes (Horisch, 2010)
  • social preferences (Horisch, 2010)
  • distribution of opportunities (Krawczyk, 2010)
  • perception of fairness (Durante and Putterman, 2009)
  • biased perceptions of inequality (Cruces et al., 2013)

Possible open questions

Better empirical measurements. Much of the empirical research uses survey data or archival analyses that have weak identification. A stronger identification strategy would be a contribution to this literature. For example, a project could use:

  • random or quasi-random assignment of layoffs. Some firms use (or could be persuaded to use) quasi-random assignment of layoffs. For example, if a company has a policy of laying off everyone below a certain performance threshold, then a regression discontinuity design could be used to identify the effects of losing a job on redistribution preferences
  • regional variation in media coverage of economy and politics. Slant in local media coverage (Gentzkow and Shapiro, 2010) could influence preferences for redistribution or directly or indirectly through (for example) beliefs about inequality

Misperception of stability of preferences. Political discourse usually relies on appeals to objective truths, and most people probably believe that their political opinions are stable, grounded in facts and evidence, and not sensitive to changes in personal circumstances. However, the literature suggests that demographic changes (like getting married, having children, getting older, joining a union, or losing/getting a job) have a strong influence on redistribution preferences. A panel survey could establish whether people believe that their preferences will change after a demographic change, and then whether their preferences really do change, and whether they remember or empathize with their previous preferences.

More or different experiments

  • Test the equilibrium prediction in Alesina and Angeletos (2005), by manipulating ex ante expectations of a redistribution scheme, and then measuring ex-post preferences for optimal policies
  • Idea (B) could be tested experimentally in a “veil of ignorance” experiment.

References

Alesina, A., and Angeletos, G. 2005. Fairness and Redistribution. American Economic Review 95 (4)

Alesina, A., and Ferrara, E. 2001. Preferences for Redistribution in the Land of Opportunities. HIER Discussion Paper Number 1936

Alesina, A., and Fuchs-Schundeln, Nicola. 2005. Good bye Lenin (or not?): The effect of Communism on people’s preferences. NBER Working Paper 11700

Alesina, A., and Giuliano, P. Preferences for Redistribution. NBER Working Paper 14825

Alesina, A., and Glaeser, E. 2004. Fighting Poverty in the US and Europe: A World of Difference. Oxford University Press, Oxford, UK

Buera, F., Monge-Naranjo, A., and Primicieri, G. 2011. Learning the wealth of nations. Econometrica 79 (1), 1-45

Cruces, G., Perez-Truglia, R., and Tetaz, M. 2013. Biased perceptions of income distribution and preferences for redistribution: Evidence from a survey experiment. Journal of Public Economics 98, 100-112

Cusack, T., Iversen, T., and Rehm, P. 2006. Risks at work: the demand and supply sides of government redistribution. Oxford Review of Economic Policy 22 (3)

Durante, R., and Putterman, Louis. 2009. Preferences for Redistribution and Perception of Fairness: An Experimental Study. Working paper, Brown University Department of Economics

Fong, C. 2001. Social preferences, self-interest, and the demand for redistribution. Journal of Public Economics 82, 225-246

Fong, C., Gintis, H., and Bowles, S. 2005. Strong reciprocity and the welfare state. In Moral Sentiments and Material Interests, MIT Press

Gaviria, A., Graham, C., and Braido, L. Social Mobility and Preferences for Redistribution in Latin America. Economia 8 (1), 55-96

Gentzkow, M., and Shapiro, J. 2010. What Drives Media Slant? Evidence from US Daily Newspapers. Econometrica 78 (1), 35-71

Horisch, Hannah. 2010. Is the veil of ignorance only a concept about risk? An experiment. Journal of Public Economics 94, 1062-1066

Krawczyk, M. 2010. A glimpse through the veil of ignorance: Equality of opportunity and support for redistribution. Journal of Public Economics 94, 131-141

Kuziemko, I., Norton, M., Saez, E., Stantcheva, S. 2013. How elastic are preferences for redistribution? Evidence from randomized survey experiments. NBER Working Paper 18865

Linos, K., and West, M. 2003. Self-Interest, Social Beliefs, and Attitudes to Redistribution: Re-Addressing the Issue of Cross-National Variation. European Sociological Review 19 (4), 393-409

Luttmer, E., and Singhal, M. 2008. Culture, context, and the taste for redistribution. NBER Working Paper 14268

Margalit, Y. 2013. Explaining Social Policy Preferences: Evidence from the Great Recession. American Political Science Review 107 (1).

Ohtake, F., and Tomioka, J. 2004. Who Supports Redistribution? The Japanese Economic Review 55 (4)

Olivera, J. 2013. Preferences for redistribution in Europe. GINI Discussion Paper 67

Yamamura, E. 2012. Social capital, household income, and preferences for income redistribution. European Journal of Political Economy 28, 498-511

Yamamura, E. 2014. Effects of Siblings and Birth Order on Income Redistribution Preferences: Evidence Based on Japanese General Social Survey. Social Indicators Research 121, 589-606

 

 

Post by Bradford Tuckfield

I offer a full range of data analysis services. To set up a free consultation, email me at bradford@analytics-man.com.

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