Redistribution, Inequality, and Happiness

Summary of working paper 8198

The more firmly 'poor people' believe in the chance of bettering their economic situation, the less likely their commitment to the notion of government intervention in wealth redistribution.

How concerned are citizens about inequality of income and how much do they support the government redistributing wealth as a means of reducing social inequality? There are significant differences between Europeans and Americans on these subjects, largely based on how the citizenry perceive social mobility and opportunity in their respective societies. At the same time, even within the United States, the nation perceived as offering the greatest social mobility, there are significant attitudinal differences.

In Inequality and Happiness: Are Europeans and Americans Different? (NBER Working Paper No. 8198), authors Alberto Alesina, Rafael Di Tella, and Robert MacCulloch find that "wealthy and right-wing Europeans" are not less happy because inequality exists, while "poor and left-wing Europeans" are unhappy about inequality. In the United States, in contrast, the poor may believe in "social mobility" (so that being poor now doesn't mean they will be poor in the future) and thus be less concerned than Europeans about inequality.

That the poor suffer from inequality and favor government intervention to level the playing field may be conventional wisdom, but evidently if a society perceives that today's poor may be tomorrow's rich, such sentiments will be modified considerably. This helps to explain why the popular demand for government to reduce inequality has been greater in Europe than in the United States for some time.

The authors take results from the United States General Social Survey (1972-94) and the Euro-Barometer Survey Series (1975-92) to determine the factors used by respondents to rate their level of personal happiness and sense of social and economic well-being. The researchers then correlate their findings with measured levels of inequality, a key factor in socio-economic "happiness."

In Preferences for Redistribution in the Land of Opportunities (NBER Working Paper No. 8267), Alesina and Eliana La Ferrara examine American attitudes towards redistribution of wealth, again using data gathered by the General Social Survey. This research is distinguished from previous inquiries, though, because it considers attitudes toward redistribution policies that arise from individual experience with social mobility as well as the role of general mobility in society. Moreover, Alesina and La Ferrara consider perceptions of equal opportunity as one factor in redistribution preferences.

Their results lead to some thought-provoking refinements to widely accepted generalizations about how rich and poor are likely to view redistribution of wealth via tax dollars. Alesina and La Ferrara find, for example, that endorsement of redistribution among persons below the mean or median income levels is inversely proportional to those persons' perceptions of opportunity for social mobility. In other words, the more firmly "poor people" believe in the chance of bettering their economic situation, the less likely their commitment to the notion of government intervention in wealth redistribution. Additionally, those who are closest to the median income level have the highest expectation of improved future income; hence their weaker attachment to distributive policies.

The researchers also examine the expected correlation between redistribution preference and risk aversion. An individual's personal history with social mobility (upward or downward) and actual experience of unemployment is likely to influence that person's attitude towards redistribution policies. By the same token, the self-employed are probably less risk-averse than wage-earners and accordingly are less supportive of wealth redistribution. The authors do note however that the self-employed are likewise less likely to be beneficiaries of such redistribution.

It is clear, the authors conclude, that favoring redistribution is positively correlated to belief in the possibility of social and economic betterment. But such attitudes exist only when individuals perceive "equality of opportunity" in pursuit of upward mobility. The people most opposed to government intervention in distributive matters, Alesina and LaFerrara find, are those who believe that everyone has the same opportunities to move up in life. Conversely, those who most firmly believe that discrimination interferes with equality of opportunity, including African-Americans and women, are the strongest proponents of redistribution of wealth.

-- Matt Nesvisky