The influence of income inequality aversion on redistribution in a democratic context

Abstract

This paper illuminates one mechanism by which democracy may fail to mitigate income inequality despite a widespread preference against it. When income inequality aversion is prevalent, high‐skilled, higher‐wage workers may adjust their working time to reduce inequality. However, the decrease in societal efficiency due to forgone high‐skilled labor outweighs an increase in efficiency from lower‐skilled workers. This implies that a pivotal worker may reject strong redistribution in favor of overall efficiency. Moreover, if the pivotal voter believes that a socially prevalent aversion already mitigates income inequality, a lower tax preference is further reinforced.