1 iv) income inequality and the easterlin paradox one of the missing variables? (in the estimation...
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IV) Income Inequality and the Easterlin paradox
• One of the missing variables?
(in the estimation of the relationship between Income and Happiness)
Di Tella and MacCulloch (2008).
Sacks, Stevenson and Wolfers (2010)
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Stevenson and Wolfers (2008)
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III. The aversion to inequality and the demand for income
redistribution
Two notions of inequality :- the distribution of national income in
general- the income gap between my reference
group and myself
In both cases: the link between inequality
and well-being can be direct or
informational.
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Beliefs and preferences
• Beliefs on the factors of social
success, on the process of income
generation
• Preferences for these elements – for
the process
• Preferences for the outcomes
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Fairness preferences
• Distributive justice : judged by final outcomes
Needs principles
Equity principle (individual inputs/outputs)
o Exogenous inputs: luck, birth
o Endogenous inputs: effort, choice
• Procedural fairness
Voice for everybody
Neutrality of decision-makers
Transparent and consistent procedures
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Beliefs
• Beliefs about the cause of income inequality
• About the return to effort
Self-interest and self-serving biases
Personal characteristics and the sensitivity to inequalityWomenAgeEducationCountry’s historyReligiosity…
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Alesina, Glaeser and Sacerdote (2001)
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Attitudes towards income inequality
• Alesina A., di Tella R. and MacCulloch R. (2004), Journal of Public Economics, 88 (9-10), 2009-2042.
• Alesina A., and la Ferrara E. (2001), Journal of Public Economics, May 2005, 89: 897-931
• Alesina A., Glaeser E. and Sacerdote B. (2001), Brookings Papers on Economic Activity, Fall, 187-278.
• Corneo G. and H-P. Grüner (2000), American Economic Review, 90, 1491-1507.
• Fong C. (2001), Journal of Public Economics, 82, 225-246.
Difference Europe-USA
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1. A pure preference for income equality?
National / cultural differences?
Morawetz D.
“Income Distribution and Self-
Rated Happiness: Some Empirical
Evidence”
The Economic Journal
1977, 87, 511-522
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Alesina, di Tella and Mac Culloch “Inequality and Happiness: are
Europeans and Americans Different? »
Journal of Public Economics, 2004.
• Data :
- US General Social Survey, 1972-1994, 24 333 individuals, 23 years.
- Europe : Euro-barometer, 1975-1992, 273 386 individuals, 18 years.
- Self-rated happiness.
- Gini Coefficients (Deiniger et Squire, 1996).
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2. Beliefs and aversion to inequality
POUM, Fairness, reciprocity,
responsibility, etc.
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Beliefs * Self-Interest
• Benabou R. and Ok E. (2001),
“Social Mobility and the Demand for
Redistribution: The POUM
Hypothesis”, Quarterly Journal of
Economics, 116 (2), 447-487.
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Alesina, Glaeser and Sacerdote
(2001)
« Why Doesn’t the US Have a
European-Style Welfare System ? »,
Brookings Papers on Economic
Activity, Fall, 187-278.
Beliefs about factors of success in life
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Alesina and Angeletos,
“Fairness and Redistribution: US
versus Europe”,
American Economic Review, 2005, 95:
913-35.
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Alesina and la Ferrara (2005),
“Preferences for Redistribution in
the Land of Opportunities”
Journal of Public Economics, 89:
897-931.
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Beliefs * Preferences
Christina Fong,
« Social Preferences, Self-Interest, and the Demand for Redistribution »
Journal of Public Economics
2001, 82, 225-246
Fong, Bowles and Gintis, “The Behavioural Motives for Income
Redistribution”. Australian Economic Review. 2005, 38(3), pp. 285-197.
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Contributive justice
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Contributive justice
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Pure contributive justice
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Alesina, Glaeser and Sacerdote
« Why Doesn’t the US Have a
European-Style Welfare
System ? »
Brookings Papers on Economic
Activity, 2001, Fall, 187-278.
Ethnic altruism
Preferences (* Beliefs?)
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Erzo Luttmer
« Group Loyalty and the
Taste for Redistribution »
Journal of Political Economy
2001, 109(3)
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Racial Heterogeneity inside the US and AFDC State Transfers
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Changing preferences for income equality
• Alberto Alesina and Nicola Fuchs-Schündeln, « Good bye Lenin (or not?): The Effect of Communism on People's Preferences », American Economic Review, 2007, 97: 1507-1528.
• Feedback process of the economic regime on individual preferences
• exploit the "experiment" of German separation and reunification to establish exogeneity of the economic system
• East Germans are more in favor of redistribution and state intervention than West Germans, even after controlling for economic incentives. This effect is especially strong for older cohorts, who
lived under Communism for a longer time period.
• East Germans' preferences converge towards those of West Germans.
• It will take one to two generations for preferences to converge completely.
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Alesina and Fuchs-Schuelden (2005)
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Alesina and Fuchs-Schuelden (2005)
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Alesina and Fuchs-Schuelden (2005)
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Conclusion on welfare and income inequality
• Pure aversion to inequality
• Preferences over the process of income
formation
• Contributive justice (insurance,
solidarity)
• Altruism?
• Interaction between beliefs and
preferences
• Might influence relationship between
GDP and Happiness.