TY  - JOUR
AU  - Kerr,William R.
TI  - Income Inequality and Social Preferences for Redistribution and Compensation Differentials
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17701
PY  - 2011
Y2  - December 2011
UR  - http://www.nber.org/papers/w17701
L1  - http://www.nber.org/papers/w17701.pdf
N1  - Author contact info:
William R. Kerr
Harvard Business School
Rock Center 212
Soldiers Field
Boston, MA 02163
Tel: 617/496-7021
E-Mail: wkerr@hbs.edu
AB  - 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.
ER  -