Redistribution and beliefs about the source of income inequality

Abstract

Previous literature demonstrates that beliefs about the determinants of income inequality play a major role in individual support for income redistribution. This study investigates how people form beliefs regarding the extent to which work versus luck determines income inequality. Specifically, I examine whether people form self-serving beliefs to justify supporting personally advantageous redistributive policies. I use a laboratory experiment where I directly measure beliefs and manipulate the incentives to engage in self-deception. I first replicate earlier results demonstrating that (1) people attribute income inequality to work when they receive a high income and to luck when they receive a low income and (2) their beliefs about the source of income inequality influence their preferences over redistributive policies. However, I do not find that people’s beliefs about the causes of income inequality are further influenced by self-serving motivations based on a desire to justify favorable redistributive policies. I conclude that, in my experiment, self-serving beliefs about the causes of income inequality are driven primarily by overconfidence and self-image concerns and not to justify favorable redistributive policies.

The Consequences of Inequality: Beliefs and Redistributive Preferences

“…85 As we discussed in Section 4.2.3, fairness views are also more polarized across income, wealth and party affiliation than externality views. Fairness views, such as the view that the economic system is unfair, are significantly more common among low-income and low-wealth individuals, both in our sample and in other surveys (Valero, 2021). Externality views, on the other hand, have either weak or non-existent correlations with income and wealth.…”

“…37 The latter follows the literature; generally, individuals with higher economic status believe that the distribution is more fair (e.g. Valero, 2021). The figure is without controls.…”

Preferences for redistribution

“…Recent economic literature studies how people's beliefs about the determinants of income inequality influence their taste for redistribution (Fehr & Vollmann, 2020; Lobeck, 2021; Valero, 2021). Given that previous literature highlighted the importance of luck and merit on individually chosen redistribution levels, Valero (2021) experimentally investigates whether subjects form beliefs about the role of effort versus luck to justify their own successful economic outcome.…”

“…Recent economic literature studies how people's beliefs about the determinants of income inequality influence their taste for redistribution (Fehr & Vollmann, 2020; Lobeck, 2021; Valero, 2021). Given that previous literature highlighted the importance of luck and merit on individually chosen redistribution levels, Valero (2021) experimentally investigates whether subjects form beliefs about the role of effort versus luck to justify their own successful economic outcome. She replicates findings with successful people being overconfident and overestimating the role of effort while unsuccessful people overestimate the role of luck in the reward process but she does not find any self‐serving motivation on top of that.…”

When Merit Breeds Luck (or Not): An Experimental Study on Distributive Justice

“…Studies show that people tend to ask for less redistribution when inequality results from the latter rather than from the former (Alesina and Giuliano, 2011;Fong and Luttmer, 2011;Alesina and Angeletos, 2005;Alesina and La Ferrara, 2005). Wealth inequality is, however, often the result of both merit and luck: when their relative impact on economic success is uncertain, high-earning individuals are shown to adopt self-serving beliefs (Valero, 2022;Deffains et al, 2016), so as to justify a lower level of taxation (Fehr and Vollmann, 2020), while external observers incline towards egalitarianism (Cappelen et al, 2022). Cappelen et al [2017] examines a situation in which the income-generating process is perfectly observed by an external decision-maker who has to select how to eventually redistribute earnings: in their experiment the level of inequality between two subjects is maximum (one gets the total amount of points and the other gets nothing) and across treatments the only difference relates to the portion of points determined by luck and/or real effort; they find that tolerance of inequality is strongly prompted by merit, even if it contributes only slightly to generate highearners' incomes.…”