Social Mobility and the Demand for Redistribution: the Poum Hypothesis

35 Pages Posted: 11 Jul 2000 Last revised: 11 Oct 2010

See all articles by Roland Bénabou

Roland Bénabou

Princeton University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Efe A. Ok

Leonard N. Stern School of Business - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 1998

Abstract

Even relatively poor people oppose high rates of redistribution because of the anticipation that they or their children may move up the income ladder. This hypothesis commonly advanced as an explanation of why most democracies do not engage in large-scale expropriation and highly progressive redistribution. But is it compatible with everyone -- especially the poor -- holding rational expectations that not everyone can simultaneously expect to end up richer than average? This paper establishes the formal basis for the POUM hypothesis. There is a range of incomes below the mean where agents oppose lasting redistributions if (and, in a sense, only if) tomorrow's expected income is increasing and concave in today's income. The laissez-faire coalition is larger, the more concave the transition function and the longer the policy horizon. We illustrate the general analysis with an example (calibrated to the U.S.) where, in every period, 3/4 of families are poorer than average, yet a 2/3 majority has expected future incomes above the mean, and therefore desires low tax rates for all future generations. We also analyze empirical mobility matrices from the PSID and find that the POUM effect is indeed a significant feature of the data.

Suggested Citation

Bénabou, Roland and Ok, Efe A., Social Mobility and the Demand for Redistribution: the Poum Hypothesis (November 1998). NBER Working Paper No. w6795. Available at SSRN: https://ssrn.com/abstract=226388

Roland Bénabou (Contact Author)

Princeton University - Department of Economics ( email )

Robertson Hall, 440
Princeton, NJ 08544
United States
609-258-3672 (Phone)
609-258-5533 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
212-998-8939 (Phone)
212-995-4186 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Efe A. Ok

Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-8920 (Phone)
212-995-4186 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
30
Abstract Views
1,408
PlumX Metrics