Biased Perceptions of Income Inequality and Redistribution

Abstract

When based on perceived rather than o n objective income distributions, the Meltzer-Richards hypothesis and the POUM hypothesis work quite well empirically: there exists a positive link between perceived inequality or perceived upward mobility and the extent of redistribution in democratic regimes -though such a link does not exist when objective measures of inequality and social mobility are used. These observations highlight that political preferences and choices might depend more on perceptions than on factual data.

Redistributive preferences: Why actual income is ultimately more important than perceived income

“…A vibrant recent literature, however, has scrutinised these assumptions and reached a consensus: perceived income inequality is more important than actual ‘objective’ income inequality, which respondents frequently cannot accurately assess (Becker, 2020; Bobzien, 2020; Bussolo et al, 2019; Cansunar, 2021; Choi, 2019; Engelhardt and Wagener, 2014; Fatke, 2018; Gründler and Köllner, 2017; Kuhn, 2020). Misperceptions of pay differentials (Osberg and Smeeding, 2006), wealth inequality (Norton and Ariely, 2011), income inequality (Niehues, 2014) and individuals’ own relative position in the income distribution (Cruces et al, 2013) have been documented across a variety of contexts.…”

“…One important criticism concerns its micro-foundations: there appears to be widespread misperceptions of income inequality. Thus, many recent studies claim that subjective perceptions are a better predictor for redistribution preferences than actual objective conditions (Becker, 2020; Bobzien, 2020; Bussolo et al, 2019; Cansunar, 2021; Choi, 2019; Engelhardt and Wagener, 2014; Fatke, 2018; Gründler and Köllner, 2017; Kuhn, 2020). Gimpelson and Treisman (2018: 27) even suggest that ‘most theories about political effects of inequality need to be reframed as theories about effects of perceived inequality’.…”

Income inequality and happiness: Which inequalities matter in China?

“…In several studies it is argued that, owing to limited information about wider inequality, respondents' perceptions of inequality are influenced by their reference groups, which are normally sets of people like themselves. Thus, poor people are likely to overestimate their actual income rank and rich people to underestimate their rank (for instance, Engelhardt and Wagner, 2014, Knell and Stix, 2017, Iacono and Ranaldi, 2019. The implication is that, if actual inequality is defined to cover a wider population than a person's reference group, reported perceived inequality is less than actual inequality.…”

Dispersed Behavior and Perceptions in Assortative Societies

“…The key difference with Proposition 4 is that if Ĉ = C I , then coordination incentives do vary across agents. Indeed, for some action distributions Ĥ, coordination incentives across agents will differ by more than their action 39 Cruces, Perez-Truglia, and Tetaz (2013); Engelhardt and Wagener (2015); Gimpelson and Treisman (2018); Niehues (2014) find empirically that people's perceptions of income inequality or of their own income quantile better predict their attitudes to redistribution than the actual income distribution. In an endogenous sorting model, Windsteiger (2018) assumes agents underestimate differences across income classes and shows that this reduces demand for redistribution; in contrast with Appendix E.2, the median income voter is decisive in her setting and coordination motives play no role as agents draw inferences from observed types rather than actions.…”