Pietro Navarra Settimana #1: Libertà e redistribuzione Economia e Finanza Pubblica.

Pietro NavarraSettimana #1: Libertà e redistribuzione

Economia e Finanza Pubblica

Outline1. The redistribution paradox in democratic systems

2. The size of redistribution differs across countries. Why?

3. Literature review on preferences for redistribution and welfare spedinga) social mobility and redistributiuonb) distributive justice and redistribution c) other economic, social and political motives for redistribution

4. Why are some sources of inequality justifiable and others aren not?Autonomy freedom (AF) is our answer

5. A theoretical model of AF and redistribution

6. The empirical investigation

The redistribution paradoxThe framers of US constitution supported the extension of suffrage only to property owners. They believed that if all citizens were given the vote, the right to property would have likely been overturned

In modern democracies political rights are distributed equally. Income distributions are such that the median income is generally lower than the average income. In these circumstances a majority of voters (i.e., the poorest 50%) may be expected to impose a transfer scheme that redistributes all income to the mean

History tells us that this expectation proved to be false and the existence of universal suffrage did not lead to the expropriation of the wealth from the rich by the poor. Why did this happen? Why does inequality persist in democracies? Why does not the majority of citizens with incomes below the median vote for extensive welfare systems?

The redistribution paradox

Explanation 1 (efficiency): full income equalization is not carried out through political action in democracies since large scale wealth expropriation would produce adverse dynamic effects for the entire economy

This perspective is based on the hypothesis that significant redistribution of income from more to less productive economic agents would be inefficient. This fact would cause an overall reduction of working incentives and a decline of national income with the associated consequence that the wealth of the majority would inevitably fall (Meltzer and Richard, 1981)

Further, if the rich have an exit option by moving to another jurisdiction, this would tend to limit the available resources and ultimately the scope for redistribution (Epple and Romer, 1991)


Explanation 2 (efficiency): more egalitarian distributions of income are unlikely to be associated with investments in education, innovation and economic growth (Perotti, 1993; Fernandez and Rogerson, 1995). Voters understand these unfavorable effects of income equality on economic development and choose to attenuate their requests for higher redistribution

Explanation 3 (public choice): the notion that democracy expresses the will of people is considered naive (Buchanan and Tullock, 1956; Olson, 1965). Small groups are better equipped in swaying policy choices. They generally enjoy better economic conditions and offer larger per-capita gains that better mobilize their members. Democratic policy makers are captured by such organized groups to the detriment of larger and often disorganized groups (Peltzman, 1976) – Economic power often translates in political power (Breyer and Ursprung, 1998)


Explanation 4 (collective action problem): the concept of voters ignorance due to the fact that for the vast majority of voters the costs of acquiring information about the legislative process and the effect of this acquisition on their welfare are much higher than the expected beneficial effects (Olson, 1957; Popkin, 1991; Bartels, 1996)

Poor and less educated persons have a lower propensity in spending time and money to acquire information about the policy formation process (Rosenstone and Hansen, 1993)

The media, which to a larger extent influence the political opinion of voters, are owned and/or closely controlled by economically powerful groups which are interested in maintaining a relatively unfettered process of wealth accumulation (Chomsky and Herman, 1988; Zaller, 1992)


Explanation 5 (electoral competition): the way in which competition is faced by opposing parties may constitute another interesting possible explanation for why democracy does not allow full redistribution of wealth from the rich towards the poor

Electoral competition is never based on a single issue, but rather it is characterized by parties confronting themselves on multi-issue platforms amongst which many are of non-economic nature (Roemer, 1998)

If political competition takes place within a context in which a non-economic issue play a salient role, the party representing the poor may advocate a softened down redistribution policy

Redistribution across countries

Although income inequality is justifiable in democracies and the poor majority does not expropriate the wealth from the rich minority, governments redistribution policies differ in different countries

Why some countries spend more in welfare and others less? Does individual preferences for redistribution help explain differences in welfare spending across countries?

a.we describe economic, social and political motivations that explain the cross-country heterogeneity of social expenditure b.we examine the effects of people's beliefs about social mobility on the distribution of income and their effect on individuals’ preferences for welfare transfers we analyze the consequences fairness concerns on individual's attitudes toward inequality and redistribution

The theory: Degree of openness

A country's redistributive scheme is the government's response to exogenous income shocks deriving from the degree of openness of its economy: a country with a large exposure to international trade is more vulnerable to large economic instability

The theory: ReligiosityReligion and welfare spending are substitute mechanisms against adverse life events. Therefore, high religiosity is expected to be associated with low redistribution and vice versa

The theory: FractionalizationGroup fragmentation in the population along racial and/or ethnic lines may affect welfare spending. People of different races, religion and ethnicities look at each other with some suspicion and may feel less generous in terms of welfare

The theory: Fractionalization

The theory: Political explanations

PR systems produce more redistributive spending since parliaments under PR are fragmented. Fragmentation leads to multi-party coalition governments that are conducive to large and more persistent public deficits

The theory: IncomePeople's preferences for redistribution are driven by the net pecuniary gain accruing to single individuals from redistributive taxation: if an individual is a direct recipient of a transfer program she favors it and viceversa (Roberts, 1977)

The theory

The basic "workhorse" political economic model for preferences for redistribution is Meltzer and Richards (1981). It is a static model in which individuals care only about their consumption (income) and have different productivities

The only tax and transfer scheme allowed is given by lump sum transfers financed with a linear income tax. The median voter theorem aggregates individual preferences and captures a very simple political equilibrium

Consider a standard utility function with the usual properties:

where one unit of labor is inelastically supplied and the individual productivityis

The theoryAssume that the government uses a linear income tax t on income to finance lump sum transfers and that there is a wastage equal to per person which capture the distortionary cost of taxation. Using the government budget constraint, which establishes that every one receives the same lump sum transfer, and defining the average productivity, one can write:

Equation (2) simply states that consumption is the sum of after tax laborincome (the first term) plus the lump sum transfer obtained by the government(the second term) reduced by the waste of taxation (the third term)

The theoryThe equilibrium tax rate is the one that maximizes consumption for thevoter with median productivity

The distance between average and median is, in this model, the criticalmeasure of inequality

The tax rate (and therefore the level of the lump sum redistribution) is higherthe larger the difference in productivities (or income, in simplified versions of the model like this one) between the average and the median voter

The theoryThe difference between the self-reported income and average income in society as a measure of the individual's net loss from redistributive taxation: countries with higher individual incomes display lower levels of welfare spending (Meltzer and Richards, 1981)

The theory: Discounting income flows

People's preferences for redistribution points to the individual’s net pecuniary gain from redistributive taxation: if he is a direct recipient of a transfer program she favors it and viceversa

Taxes and redistributive schemes are in place for lengthy periods of time. Individuals are both interested in today's income after taxes and future incomes. Therefore, we would expect that people are likely to maximize a multi-period utility function in which income at further stages will be properly discounted

In this context, people's beliefs about of social mobility play a crucial role in shaping their attitudes toward redistribution. Individuals whose income is currently below the average entertain the hope that they or their children will someday move up in the income ladder and oppose high taxes for the fear of hurting their future selves or their children

Hirshman (1973) tunnel effect: He emphasizes the important role played by the expectations about individuals’ own future incomes on their attitudes towards current income differences

In assessing whether government should reduce wealth inequalities, people do not only take the status quo into account, but they also consider their prospects about future welfare

Poor people who view themselves on a rising income trajectory may well oppose redistribution because they soon expect themselves to be further up the income ladder (and would eventually have to pay for the government's redistribution). This mechanism might also be at work in the reverse direction, i.e., the rich persons may favor redistribution because they expect to be poor in the near future


Hirshman's contribution gave rise to a related literature analyzing the impact of the `prospects of upward mobility' (POUM) on people's demand for redistribution (Benabou and Ok, 2001)

Both the `tunnel effect' and the POUM hypothesis reflect clear selfish-centered motives underlying agents attitudes towards equalization policies, without any altruistic concern.Yet, they do not clarify what determines their optimistic (or pessimistic) expectations about future incomes

Why do (do not) people believe in their prospects of upward mobility? Why do (do not) they trust the working of social mobility? Why do (do not) they think it is fair and just? What are the determinants of people's beliefs about the social mobility process?


The theory: POUM hypothesis

A departure from the basic model is one in which the ranking of individuals inthe income ladder can change, i.e. a model where we allow for social mobility,(Benabou and Ok, 2001)

Individuals care about not only current but also future income. If redistributive policies are long-lasting, future income prospects matter in determining current preferences for redistribution

We need at least two periods in the utility function:where the second subscript indicates the periods

The theory: POUM hyoithesisIndividual income is now perturbed by shocks to individual productivity , where the properties of these shocks are discussed below

The budget constraint for the consumer (ignoring discounting) is:

which generalizes (2). Note the assumption that the tax rate is decided at thebeginning of period 1 and is fixed for period 2

Also period 2 income is uncertain so individual i has to vote based upon his expectation about his income relative to average and median income of period 1, which are known, and of period 2, when his position in the income ladder is unknown

The theory: POUM hypothesis

Prospects of upward mobility should make somebody below the medianof today’s income be more averse to redistribution than otherwise

In principle, this effect could be counter-balanced by the prospect of downward mobility, but Benabou and Ok (2001) show that, under certain conditions, prospects of upward mobility (POUM) reduce the demand for redistribution relative to the basic Meltzer-Richards case

The POUM hypothesis highlights that social mobility deeply interacts with preferences for redistribution

The theory: POUM hypothesisIndividuals discount their future income so as to take into account their perceived chances to move up the income ladder. As they discount future income, if they expect to escape poverty, they won’t like redistribution

The theory: Opinions about inequality

A more radical departure from models in which individuals care only abouttheir income/consumption is the one in which the utility function includes some measure of income distribution:

where is individuals’ consumption, some measure of income inequalityand the summation is taken from the present "p" to a final period (possibly infinity). In other words, consumption depends upon a host of standard variables (like labour supply or productivity) and inequality

This argument in the utility function captures the fact that individual i doesnot care about inequality per se but only about its effect on her consumptionflow


Two observations:

1.The dependency of consumption over inequality might be much richer if the model were made dynamic: current consumption may depend on past inequality or even on expected future inequality, but the basic qualitative argument would not change

2.Different individuals may care differently about different measures of inequality, a very important theoretical consideration that will be very hard to take into consideration empirically

What would be the sign of the first derivative of that function, i.e., the sign

of at different levels of ?

The theory: opinions about inequality

In particular, is it possible that even the “rich” may be affected negatively by inequality so that, purely for selfish reasons, they would vote for redistribution? Two arguments have been suggested to justify a negative derivative for the rich:

Externalities in education. Assume that the average level of education in a country increases that country’s aggregate productivity and that education haspositive externalities. Also assume that more inequality implies that more people are below an income level that does not allow them to acquire an Education. Then, even the rich may favor some redistribution because theywould also benefit from an increase in the average level of education

Crime and property rights. A largely held view is that more inequality leadsto more crime, and therefore, by reducing it, the rich would have to spendless on security, since generally their property would be safer

Incentive effects. More inequality has an aggregate social value. In fact onemay argue that more inequality creates incentives to work hard and exercisemore effort for most people below the top. The strength of this incentive effect is, of course, a very hotly debated empirical question

Whether channel 3) dominates or not on the other two is of course criticalin determining the relationship between inequality and economic efficiency. If channel 3) dominates there is a trade off between equality and economicefficiency; if channel 1) and 2) dominate there is no such a trade off


The theory: The role of fairness

Individuals may have views about what constitutes a justifiable level of inequality. One way of expressing these preferences that would be useful for our discussion is as follows:

where represents the ideal level of inequality for individual i and his/her weight on deviations from it

Needless to say, the quadratic specification is used only for convenience ofexposition. The first term in the utility function is the same as in the previoussection


Much of our empirical discussion will be on what determines and for different individuals. From a theoretical standpoint, we could characterizevarious possibilities:


Individuals’ views about an acceptable level of inequality are often intertwinedwith a (possibly vague) sense of what is "fair" and "unfair."

People feel that there is a difference between wealth accumulated, for instance, by playing the roulette tables in Las Vegas and wealth accumulatedby working one’s way up from an entry-level job to a higher-level one with effort, long days at the office and short hours of sleep

Suppose that individuals’ income is due to a combination of effort (e) and luck(l), so that:


The overall measure of income inequality can now be decomposed in and , the inequality in the distribution of the effort and the luck parts ofincome, respectively. Therefore:

that is the overall inequality is a function of inequality in income derivedfrom effort and luck

So far, we assumed that individuals had an ideal level of Q and no preferencesover its two components. But individuals might have preferences defined overthe two components for a sense of fairness, i.e., one is more entitled to retainthe sources of his/her effort than income acquired by chance


We could rewrite the utility function of individual i as follows:

Where for some, and perhaps all, i. These inequalitiescapture the fact that a lower level of inequality induced by luck is deemed more desirable than inequality induced by effort

Possibly , if individuals feel more strongly about deviations from optimality for one or the other type of inequality


What is luck and what is effort is, in practice, an issue on which people may strongly disagree:

Is being born smart purely luck? If so, how do we disentangle success in life that results from some combination of effort and intelligence?

Being born in a wealthy family is luck, but what if the wealth accumulated by our parents is the result of great effort?

The terms effort and luck need to be interpreted broadly. By effort, we meanall activities that require "pain“ or a utility cost for the individuals, while luckrepresents all those factors that deliver income to the individuals without any pain or loss of utility to obtain it


Social policies that depend on people’s views about luck and effort may in turn create incentives for individuals to put forth more or less effort andtherefore generate endogenously different shares of luck-dependent and effort-dependent income

Alesina and Angeletos (2005) construct a model that is meant to capture a low redistribution (US-style) equilibrium and a high redistribution (European-style) equilibrium

In the US equilibrium, taxes are low, people invest more in hard work, and a higher fraction of income differences amongst people is due to effort. In theEuropean equilibrium, taxes are high, effort and labor supply are low, a largerfraction of income differences is due to differences in luck, and therefore, hightaxes and large redistributions are desirable


Individuals support redistribution owing to a sense of justice: redistribution should take place to the benefit of those citizens whose low incomes are due to bad luck, rather than to those whose low incomes are due to lack of effort.

The theory: Distributive justice

Studies on the effects of income dynamics on people's attitudes towards inequality have undergone a research path that stresses the role of individual's perceptions about fairness in social mobility

Piketty (1995): individuals support redistribution not only to improve their own financial situations, but owing to a sense of justice which entails that citizens should be compensated through redistributive taxation. However, this redistribution should take place only to the benefit of those citizens whose low incomes are due to bad luck, rather than to those whose low incomes are due to lack of effort

These sociotropic preferences are based on the concept of `moral reciprocity', i.e., people are willing to transfer income to others conditionally on the guarantee that the latter are not free-riding on the system (Putterman, 1996)


The idea that the demand for redistribution depends on people’s preferences about others income and opportunities has been empirically validated in the economic literature

Fong (2001 and 2003) shows that the dynamic of income distribution and the equality of opportunities as opposed to equality of results enter in the individual's utility function

Alesina and La Ferrara (2001) demonstrate that a person's attitudes toward equalization policies depend on her opinions concerning the determinants of income. Individuals who think that wealth is determined by social acquaintance, family history and/or other similar privileges, rather than talent, education, merit and ability, are more favorable to large redistribution


Benabou and Tirole (2006) explain why people tend to believe that the world is just and individuals get what they deserve despite the fact that the world is not so just. They analyze their theory’s implications for social mobility and redistribution

If enough individuals perceive that economic success is highly dependent on effort, they will represent a pivotal voting-block demanding low redistribution. Given the relationship between beliefs, political outcome & policy choice, two equilibria emerge:- the `American Equilibrium’ characterized by individuals' belief of living in a just world that drives the process of social mobility and leads to a demand for relatively laissez-faire public policies- the `European Equilibrium’ characterized by a view of social and economic interactions that carry with them unjust incomedynamics which lead to a more generous welfare state


Alesina and Glaeser (2004) bring this perspective into the data:

- in Europe is widespread the belief that birth determines status and the poor are generally thought to be unfortunate, but not responsible for their own conditions. Government intervention through extensive welfare programs is here perceived an effective remedy for enhancing the economic conditions of the poor

- Americans believe that they live in the land of opportunity where the poor have real possibilities of escaping poverty out of hard work and personal responsibility. In this context, the role of government aids as a remedy to elevate the economic conditions of the poor is significantly degraded

The theory: Conclusions

This literature examined the determinants of the extent of redistribution and therefore the causes that lead different countries to support different sizes of the welfare state

The message: subjective beliefs matter since they shape people's perceptions about the determinants of income differentials as well as people's attitudes towards inequality and their opinion about the role of the welfare state

Why some sources of inequality are justifiable while others are not?

Justifying inequalityConsider two societies equally unequal in terms of income distribution, but different in the perception regarding the nature and causes of their inequality. People living in society A consider income dynamics fair since effort, skills and commitment are justly rewarded. In society B people believe that economic success is determined by environmental factors such as luck and/or privilege

Thus, individuals in society A are likely to be more tolerant of existing inequalities in the income distribution than those living in society B

In society A, the belief of living in a just world where the process of social mobility is driven by effort leads to a demand for low levels of income redistribution. In society B the view that income dynamics are unjust because they are based on luck and privilege leads individuals to demand large redistributive schemes

Justifying inequality: Autonomy freedom

Individuals consider income inequality fair if income distribution is perceived to be caused by factors under their control (effort) and they consider income distribution unfair if it is perceived as caused by circumstances beyond their control (luck and/or privilege)

When do individuals control the distribution of income? We argue that the development of a person’s autonomy is closely connected with her ability of making choices that express control over the way her life turns out

We argue that the fuller the exercise of a person’s autonomous behaviour, the more the individual is in a position to affect the distribution of income and the lesser her support for redistribution

Autonomy freedom: The concept

A person is autonomous if she makes choices among relevant options. A set of opportunities is composed by relevant options if the individual could have chosen something different from what she actually choose

We refer in this case to autonomous behaviour since to make her choice she has to rely upon her personal and moral qualities, as suggested by J. S. Mill’s interpretation of individuality

Such an interpretation of autonomy freedom is formalized in SCT where a literature which measures freedom of choice emerged. In this literature, choosing autonomously is valuable for substantive reasons, i.e., availability of opportunities; and for procedural reasons, i.e., control of the alternative courses of action a person may undertake

Autonomy freedom: The measure

Information about the extent of AF can be collected through surveys. In particular, there is a WVS question which is appropriate for our purposes:

Some people feel they have completely free choice and control over their life, while other people feel that what they do has no real effect on what happens to them. Please use a ten-point scale in which 1 means none at all and 10 means a great deal to indicate how much freedom of choice and control you have over the way your life turns out

This question explicitly refers both to "free choice" (substantive motive for valuing choice) and "control" (procedural motive for valuing choice)

AF & redistribution: The model

We construct a simple labor-leisure trade-off model in which the individual sequentially expresses: (1) her optimal preference for income transfers and (2) the amount of effort to unfold in her work activities

The individual seeks to maximize the following quasi-linear utility function:where and

l is leisure, y is the amount of income of the individual and S the income transfer, t is her preference for redistribution and M is the average income in society


Three are the sources of income: work effort, e, environmental factors, v, and past income, R

In the income generation process, work effort is the individual's choice variable since it is under her control. The environmental factors are those events that, although outside the individual's control, affect her ability to produce income

where θ € [0,1] parametrizes income mobility (low θ = high income persistence), so work efforts carried out in the past and past environmental factors have strong effect on current income. The level of AF perceived by the individual is captured by α € [0,1] whose value measures an agent’s belief on the relative impact of effort and environmental factors on the production of income


The individual maximizes her utility function subject to the following time constraint

Using the time constraint, we may rewrite the equation for the individual's net income as follows


The individual's maximization problem is carried out sequentially: the individual first chooses her optimal preference for redistribution and, secondly, the amount of effort

We solve the model backward by first deriving the optimal level of effort, taking as fixed the individual's preference for redistribution

Maximization yields the following values for e and l in terms of t, α and θ:

and


We now move backward to calculate the individual's optimal preference for redistribution

Substituting the result for e into the transfer equation, we obtain:

The equilibrium value for t is the solution to the following FOC:

Using the equilibrium value t*, we may define e* and l* which solve themodel


Comparative statics yields the following results:

Proposition 1: The higher the individual's level of autonomy freedom, the lower her preferences for redistribution and the higher the effort in the income generation process

Proposition 2: The higher the degree of income mobility perceived by the individual, the lower her preferences for redistribution and the higher the effort in the income generation process

Proposition 3: The higher the average income in the society, the higher individual's preferences for redistribution, the lower the effort in the income generation process

AF & redistribution: The data

The individual’s choice variables (t and e)

The transfer decision: How would you place your views on this scale? 1 means that you agree completely with the statement that we need large income differences as incentives; 10 means that you completely agree with the statement that incomes should be made more equal; if your views fall somewhere in between, you can choose any number in between

The effort decision: How important is work in your life? 1 means that work is not at all important; 4 means that work is very important. If your views fall somewhere in between, you can choose any number in between

AF & redistribution: The dataWhile income should be made more equal reflects dislike for redistribution, we need larger income differences as incentives not always leads to the individual's support for lower transfers. This observation, if were deemed as legitimate, would compromise the validity of the question to measure preferences for redistribution

However, the two statements do not have to be considered in isolation, but as different components of the same question aimed at pinpointing divergent respondents’ tastes on the same issue.

Since the issue at stake is income inequality, it is apparent that the two contrasting views whose survey's respondents are asked to pay attention to are more equal incomes and larger income differences. We believe that these two opposing preferences for the distribution of income reasonably lead to two opposing tastes for income redistribution


The individual’s primary independent transfers (α, θ and M)

Autonomy Freedom (α): already introduced in previous slides

Income mobility (θ): binary dummy = 0 if the respondent believes that people do have a chance of escaping poverty and = 1 if she believes that there is very little chance for people to escape from poverty

Average income in society (M): since we work with survey data, we do not have the possibility of calculating the average societal income unless we carry out this computation using the self-reported information. However, we reckon such a methodology unreliable, and decided to eliminate the average income level in the society from our empirical analysis


Several other independent variables and control variables are included in the dataset used for the empirical investigation

They range from socio-demographic variables (sex, age, education, and self-reported income) to individuals' opinions about whether they trust others in society, their political orientation and their religious beliefs

The empirical analysis is carried out with individual level data from the OECD countries. All the data used are drawn from the WVS database

AF & redistribution: The empirical test

The theoretical model describes the effect of an individual's level of AF on her optimal transfer and effort decisions in a two-stage decision process

In 1st stage she makes her transfers decision by expressing her optimal level of transfers, while in the 2nd stage she makes her effort decision by selecting accordingly how much effort to unfold in her work activities

Results: higher AF leads to lower transfers and higher effort (Proposition 1). Income mobility and average income affect both optimal income transfers and effort (see Propositions 2 and 3)

In the empirical model we implement a strategy to test proposition 1 and 2 only since the available data do not allow to test proposition 3

AF & redistribution: The empirical test

We use 2 econometric procedures to test the predictions of the theory: the conditional logit (CL) and the nested logit model (NL)

We estimate the probability that an individual chooses the combination of low (high) transfers and high (low) effort on the basis of the effect carried out on her decisions by AF and income mobility as predicted by the comparative statics of our model

AF & redistribution: The estimation

Regression results for Model 1: In the top part of the first column we show regression results for the transfers decision (first stage). In the bottom part of the column we display our findings for the effort decision (second stage)

AF determines both transfer and effort decisions: The greater the individual's level of AF, the higher the probability that she chooses low income transfers in the 1st stage and the higher her optimal level of effort in the 2sd stage. Proposition 1 is empirically confirmed

The degree of income mobility as perceived by the individual determines both the transfer and effort decisions: The higher the degree of income mobility, the higher the probability that the individual chooses a low level of transfer in 1st stage and a high level of effort in 2nd stage. Proposition 2 is empirically proved


Regression results for Model 2: in the top part of the second column we show the estimates of the determinants of the transfer decision (first stage). In the bottom part of the column we show the regression results related to the determinants of the effort decision

AF determines both transfer and effort decisions: The greater the individual's level of AF, the lower the probability that she chooses high income transfers in the 1st stage and the lower her optimal level of effort in 2nd stage. Proposition 1 is empirically confirmed

The degree of income mobility as perceived by the individual determines both the transfer and effort decisions: The higher the degree of income mobility, the lower the probability that the individual chooses a high transfers in the 1st stage and low effort in the 2nd stage. Proposition 2 is empirically confirmed


Other independent and control variables

Model 1The individuals’ preferences for low transfers increase if male and the higher their income level. Further, individuals are more likely to carry out higher levels of work effort if male, the younger and more educated and the stronger their religious beliefs

Model 2The individuals’ preferences for high transfers increase if female, the lower their income and the more left-wing politically oriented they are. Further, individuals are more likely to unfold lower levels of work effort the older, the less educated they are and the weaker their religious beliefs


From individal-level to aggregate results

High AF individuals demand lower levels of transfers and are more willing to work. This implies that high (low) AF individuals are more likely to generate a productive (rent-seeking) society

The support of low transfers by an AF individual emerges out of a sense of procedural fairness since she believes that her economic conditions are deserved, no matter whether she is rich or poor

Recall that income for AF individuals is generated by hard work (a variable under her control) rather than by environmental factor such as luck and privileges (variables beyond her control)

To extend the principle of procedural fairness from the individual level to the society level we examine the effect of the level of AF on the preferences for income transfers when both of them are aggregated at the country level

Model a: The greater the average level of AF in the country, the higher the citizens' support for low transfer. The average age, gender and self-reported income do not seem to affect in a statistically significant way the individual preferences for redistribution at the country level. Differently from the other demographic controls, the higher the average education of respondents, the lower their support for redistribution

Models b and c: The effect of AF is still significant and negative. Age and gender and self-reported income are not significant, whereas education keeps its negative and significant effect. We use trust to proxy fractionalization in society and note that the more individuals trust others, the greater their support for income transfers. Religiosity is not significant and individuals living in transition economies show greater support for income transfers. GDP growth rate does not influence individual preferences for redistribution.


Concluding remarks

Social mobility may be interpreted in procedural terms: if people believe that society offers equal opportunities of actual income mobility, they may be less concerned with inequality because they see social processes as fair

It is the non-instrumental value of the process that is important for individuals, rather than the actual outcomes they achieve

We claim that if individuals perceive themselves as autonomous, they feel that the mobility process is fair. In contrast, those who are not autonomous see social mobility as a biased process in which opportunities are exploited by some and not by all

Concluding remarks

Autonomy sheds light upon the analysis of redistributive policies since it allows a more fine-grained analysis

Rather than looking at ethnic characteristics (Alesina, Glaeser and Sacerdote, 2001; Alesina and Glaeser, 2004), it focuses on whether people retain control of their lives, independently of any other feature. Preferences for redistribution depend on individual rather than group characteristics

Recognition of such intra-group preference heterogeneity is likely to be the basis for more efficient policy design

Concluding remarks

Consider two countries with similar unequal distribution of income but different perceptions about inequality: Portugal and US

Concluding remarks

Individuals’ preferences for inequality drive their demand for government intervention to reduce income differences

Do the above different demands for redistribution explain cross-country differences in welfare spending? This question open our next investigation

AF & redistribution: The Italian case

North-West North-East

Center

SouthIslands

4.1

4.1

54.2

4.2

54.3

4.3

5lo

g(g

dppc)

5.8 6 6.2 6.4 6.6autonomy


ABR

BAS

CALCAM

EMR

FVG

LAZLIG

LOM

PIE

PUG

SAR

SIC

TAA

TOS

VEN

44.1

4.2

4.3

4.4

loggdppc

5.8 6 6.2 6.4 6.6 6.8autonomy

Fitted values log(gdppc)


Pietro Navarra Settimana #1: Libertà e redistribuzione Economia e Finanza Pubblica.

Documents

Transcript of Pietro Navarra Settimana #1: Libertà e redistribuzione Economia e Finanza Pubblica.