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Perceptions of Inequality and Redistribution: A Note

Author

Listed:
  • Roberto Iacono

    (Norwegian University of Science and Technology (NTNU))

  • Marco Ranaldi

    (Paris1 Panthéon-Sorbonne et Paris School of Economics)

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 recent empirical and experimental literature on perceptions of income inequality. In brief, the emerging consensus is 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 assume a more general two-sided inequality aversion. Second, we incorporate perceptions of income inequality in the model. 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 levels of inequality, in many countries, an increase in the desire for redistribution has not been observed

Suggested Citation

  • Roberto Iacono & Marco Ranaldi, 2019. "Perceptions of Inequality and Redistribution: A Note," Documents de travail du Centre d'Economie de la Sorbonne 19002, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:19002
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    References listed on IDEAS

    as
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    12. Cruces, Guillermo & Perez-Truglia, Ricardo & Tetaz, Martin, 2013. "Biased perceptions of income distribution and preferences for redistribution: Evidence from a survey experiment," Journal of Public Economics, Elsevier, vol. 98(C), pages 100-112.
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    18. Hoy Chris & Sumner Andy, 2016. "Global Poverty and Inequality: Is There New Capacity for Redistribution in Developing Countries?," Journal of Globalization and Development, De Gruyter, vol. 7(1), pages 117-157, June.
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    Cited by:

    1. Zeynep B. Ugur, 2021. "How does Inequality Hamper Subjective Well-being? The Role of Fairness," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 158(2), pages 377-407, December.
    2. Gubello, Michele, 2024. "Social trust and the support for universal basic income," European Journal of Political Economy, Elsevier, vol. 81(C).
    3. John Knight & Ramani Gunatilaka, 2020. "Income inequality and happiness: perceived or actual, widely or narrowly defined, fair or unfair, self- or community-centred inequality?," Economics Series Working Papers 922, University of Oxford, Department of Economics.
    4. Benoît Walraevens, 2021. "The triumph of injustice. Wealth, tax evasion and democracy [Inégalités économiques, justice fiscale et démocratie aux USA]," Post-Print hal-03554121, HAL.

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    More about this item

    Keywords

    Meltzer-Richard Model; Perceived Inequality; Inequality Aversion; Redistributive Preferences;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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