Richer (and Holier) than Thou? The Effect of Relative Income Improvements on Demand for Redistribution

47 Pages Posted: 11 Jan 2015

See all articles by Mounir Karadja

Mounir Karadja

Uppsala University - Department of Economics

Johanna Mollerstrom

George Mason University - Department of Economics; Research Institute of Industrial Economics (IFN)

David Seim

University of Toronto - Department of Economics; Research Institute of Industrial Economics (IFN)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2014

Abstract

We study the extent to which people are misinformed about their relative position in the income distribution and the effects on preferences for redistribution of correcting faulty beliefs. We implement a tailor-made survey in Sweden and document that a vast majority of Swedes believe that they are poorer, relative to others, than they actually are. This is true across groups, but younger, poorer, less cognitively able and less educated individuals have perceptions that are further from reality. Using a second survey, we conduct an experiment by randomly informing a subsample about their true relative income position. Respondents who learn that they are richer than they thought demand less redistribution and increase their support for the Conservative Party. This result is entirely driven by prior right-of-center political preferences and not by altruism or moral values about redistribution. Moreover, the effect can be reconciled by people with political preferences to the right-of-center being more likely to view taxes as distortive and believe that it is personal effort rather than luck that is most influential for individual economic success.

Keywords: redistribution, preference formation

Suggested Citation

Karadja, Mounir and Mollerstrom, Johanna and Seim, David, Richer (and Holier) than Thou? The Effect of Relative Income Improvements on Demand for Redistribution (October 2014). IFN Working Paper No. 1042, Available at SSRN: https://ssrn.com/abstract=2546971

Mounir Karadja

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden

Johanna Mollerstrom (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

HOME PAGE: http://https://sites.google.com/site/johannamollerstrom/

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

David Seim

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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