Research Discussion Papers, Bank of Finland
William R. Kerr
Income inequality and social preferences for redistribution and compensation differentials
Abstract: In cross-sectional studies, countries with greater income
inequality typically exhibit less support for government-led redistribution
and greater acceptance of wage inequality (e.g., United States versus
Western Europe). If individual nations evolve along this pattern, a vicious
cycle could form with reduced social concern amplifying primal increases in
inequality due to forces like skill-biased technical change. Exploring
movements around these long-term levels, however, this study finds mixed
evidence regarding the vicious cycle hypothesis. On one hand, larger
compensation differentials are accepted as inequality grows. This growth in
differentials is of a smaller magnitude than the actual increase in
inequality, but it is nonetheless positive and substantial in size.
Weighing against this, growth in inequality is met with greater support for
government-led redistribution to the poor. These patterns suggest that
short-run inequality shocks can be reinforced in the labor market but do
not result in weaker political preferences for redistribution.
Keywords: inequality; social preferences; social norms; redistribution; welfare; class warfare; (follow links to similar papers)
JEL-Codes: D31; D33; D61; D63; D64; D72; H23; H53; I38; J31; R11; (follow links to similar papers)
48 pages, December 11, 2013
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- This paper is published as:
Kerr, William R., (2014), 'Income inequality and social preferences for redistribution and compensation differentials', Journal of Monetary Economics, Vol. 66, September, pages 62-78
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