Getting Stuff
U.S. Inequality and Fiscal Progressivity: An Intragenerational Accounting
Alan Auerbach, Laurence Kotlikoff & Darryl Koehler
Journal of Political Economy, forthcoming
Abstract:
This study measures spending-power inequality within age cohorts and estimates fiscal progressivity via lifetime net tax rates. We find, first, inequality in income and, especially, wealth dramatically overstates inequality in spending power. Second, inequality in current spending power differs from that in lifetime spending power due to credit constraints, in-kind government benefits, and other factors. Third, the U.S. fiscal system is highly progressive once cohorts are old enough to have highly dispersed human wealth. Fourth, households’ rankings based on current income can differ substantially from their rankings based on lifetime resources. Fifth, current-year net tax rates substantially understate fiscal progressivity.
Why do (some) ordinary Americans support tax cuts for the rich? Evidence from a randomized survey experiment
David Hope, Julian Limberg & Nina Weber
European Journal of Political Economy, forthcoming
Abstract:
Why do (some) ordinary citizens support tax cuts for the rich? We test four prominent explanations -- unenlightened self-interest, fairness considerations, prospect of upward mobility, and trickle-down beliefs -- using a randomized, online information provision experiment, embedded in a representative survey of around 3000 US Americans. The results show that preferences for taxing the rich are fundamentally affected by information that shifts citizens’ core fairness beliefs, as well as information on the past trajectory of top tax rates. In contrast, we find no evidence in support of the unenlightened self-interest or prospect of upward mobility explanations. Overall, our results align with theories of tax policy preferences that emphasize the importance of fairness perceptions and reference points.
Does the Cream Always Rise to the Top? The Misallocation of Talent in Innovation
Murat Alp Celik
Journal of Monetary Economics, forthcoming
Abstract:
The misallocation of talent in innovation -- “missing Einsteins” -- has a first-order impact on growth and welfare. Surname-level empirical analysis combining inventor and census micro-data reveals people from richer backgrounds are more likely to become inventors, but those from high-education backgrounds become more prolific inventors. Motivated by this discrepancy, an endogenous growth model with financial frictions on the household side is developed. Individuals compete for scarce inventor training. The rich can become inventors even if mediocre through excessive credentialing spending. Shutting down credentialing spending raises innovation, growth, welfare, and inequality. Optimal progressive bequest taxes increase growth and welfare, but reduce inequality.
Should Central Banks Have an Inequality Objective?
Roberto Chang
NBER Working Paper, November 2022
Abstract:
Should central banks care about inequality? To address this question, we extend a standard model of time inconsistency in monetary policy to allow for heterogeneity. As in the standard analysis, lack of policy commitment leads to a bias towards socially excessive inflation. But the novel result is that, in the presence of heterogeneity, the bias can be offset by assigning the central bank a mandate under which agents with higher nominal wealth are given a higher relative weight than under the social welfare function. In other words, society should choose a central banker that is less egalitarian than itself, a result reminiscent of Rogoff's "conservative central banker". Our analysis underscores that including a concern for redistribution in the central bank's mandate can enhance policy credibility, but the details can be unexpected and should reflect the role of the mandate in overcoming policy distortions.
A Lower-Class Advantage in Face Memory
Pia Dietze et al.
Personality and Social Psychology Bulletin, forthcoming
Abstract:
People remember what they deem important. In line with research suggesting that lower-class (vs. higher class) individuals spontaneously appraise other people as more relevant, we show that social class is associated with the habitual use of face memory. We find that lower-class (vs. higher class) participants exhibit better incidental memory for faces (i.e., spontaneous memory for faces they had not been instructed to memorize; Studies 1 and 2). No social-class differences emerge for faces participants are instructed to learn (Study 2), suggesting that this pattern reflects class-based relevance appraisals rather than memory ability. Study 3 extends our findings to eyewitness identification. Lower-class (vs. higher-class) participants’ eyewitness accuracy is less impacted by the explicit relevance of a target (clearly relevant thief vs. incidental bystander). Integrative data analysis shows a robust negative association between social class and spontaneous face memory. Preregistration (Studies 1 and 3) and cross-cultural replication (Study 2) further strengthen the results.
A 32-society investigation of the influence of perceived economic inequality on social class stereotyping
Porntida Tanjitpiyanond et al.
European Journal of Social Psychology, forthcoming
Abstract:
There is a growing body of work suggesting that social class stereotypes are amplified when people perceive higher levels of economic inequality—that is, the wealthy are perceived as more competent and assertive and the poor as more incompetent and unassertive. The present study tested this prediction in 32 societies and also examines the role of wealth-based categorization in explaining this relationship. We found that people who perceived higher economic inequality were indeed more likely to consider wealth as a meaningful basis for categorization. Unexpectedly, however, higher levels of perceived inequality were associated with perceiving the wealthy as less competent and assertive and the poor as more competent and assertive. Unpacking this further, exploratory analyses showed that the observed tendency to stereotype the wealthy negatively only emerged in societies with lower social mobility and democracy and higher corruption. This points to the importance of understanding how socio-structural features that co-occur with economic inequality may shape perceptions of the wealthy and the poor.
Support for increasing low-wage workers’ compensation: The role of fixed-growth mindsets about intelligence
Shilpa Madan et al.
Journal of Experimental Psychology: General, forthcoming
Abstract:
Approximately 44% of U.S. workers are low-wage workers. Recent years have witnessed a raging debate about whether to raise their minimum wages. Why do some decision-makers support raising wages and others do not? Ten studies (four preregistered) examined people’s beliefs about the malleability of intelligence as a key antecedent. The more U.S. human resource managers (Study 1) and Indian business owners (Study 2) believed that people’s intelligence can grow (i.e., had a growth mindset), the more they supported increasing low-wage workers’ compensation. In key U.S. swing states (Study 3a), and a nationally representative sample (Study 3b), residents with a more growth mindset were more willing to support ballot propositions increasing the minimum wage and other compensation. Study 4 provided causal evidence. The next two studies confirmed the specificity of the predictor. People’s beliefs about the malleability of intelligence, but not personality (Study 5a) or effort (Study 5b), predicted their support for increasing low-wage workers’ compensation. Study 6 examined multiple potential mechanisms, including empathy, attributions for poverty, and environmental affordances. The relationship between growth mindset and support for raising low-wage workers’ wages was explained by more situational rather than dispositional attributions for poverty. Finally, Studies 7a and 7b replicated the effect of growth mindset on support for increasing low-wage workers’ compensation and provided confirmatory evidence for the mediator—situational, rather than dispositional, attributions of poverty. These findings suggest that growth mindsets about intelligence promote support for increasing low-wage workers’ wages; we discuss the theoretical and practical implications.
Wealth Inequality Dynamics in Europe and the United States: Understanding the Determinants
Thomas Blanchet & Clara Martínez-Toledano
Journal of Monetary Economics, forthcoming
Abstract:
This paper studies the interaction between the long-term dynamics of aggregate household wealth and the wealth distribution in Europe and the United States. We do so by building the first Distributional Wealth Accounts for Europe, including households’ assets, liabilities, investment flows, and the wealth distribution for most European countries from 1970–2020. We find that although aggregate household wealth to income ratios have followed a similar increasing pattern in both Europe and the United States since 1970, wealth concentration has increased much faster in the United States. Using wealth accumulation decompositions and counterfactual simulations, we show that the weaker rise in labor income inequality and the stronger rise in house prices relative to financial assets in Europe versus the United States appear to explain why Europe has experienced a more moderate rise in wealth concentration since the mid-1980s.
Wealth redistribution promotes happiness
Ryan Dwyer & Elizabeth Dunn
Proceedings of the National Academy of Sciences, 15 November 2022
Abstract:
How much happiness could be gained if the world’s wealth were distributed more equally? Despite decades of research investigating the relationship between money and happiness, no experimental work has quantified this effect for people across the global economic spectrum. We estimated the total gain in happiness generated when a pair of high-net-worth donors redistributed US$2 million of their wealth in $10,000 cash transfers to 200 people. Our preregistered analyses offer causal evidence that cash transfers substantially increase happiness among economically diverse individuals around the world. Recipients in lower-income countries exhibited happiness gains three times larger than those in higher-income countries. Still, the cash provided detectable benefits for people with household incomes up to $123,000.
Rising Earnings Inequality and Optimal Income Tax And Social Security Policies
Pavel Brendler
Journal of Monetary Economics, forthcoming
Abstract:
How did the US government preferences over income redistribution across generations and within generations change during 1980–2010? Using a rich quantitative model in which a Ramsey government chooses income taxation and Social Security, I decompose the total change in the actual policies into the impact of new economic and demographic conditions and government preferences. I find that the US government preferences have shifted toward more educated and older households since the 1980s. Preferences over income redistribution within and across generations interact and, therefore, must be analyzed jointly.
Favorite Possessions Protect Subjective Wellbeing under Income Inequality
Jingshi (Joyce) Liu, Amy Dalton & Anirban Mukhopadhyay
Journal of Marketing Research, forthcoming
Abstract:
Rising income inequality is taking a toll on people’s subjective wellbeing (SWB), and many commentators have implicated the role of material possessions, and thereby marketing, in this regard. Making a more nuanced argument, the present research proposes that certain material possessions – namely, favorite possessions – can mitigate the detrimental psychological effect of income inequality on SWB. In support of this proposition, experimental data from nine countries (N=3,687) and social media posts from 138 countries (N=31,332) converge to show that, while SWB generally declines as income inequality increases, encouraging consumers to attend to their favorite possessions can mitigate the negative effect of inequality on SWB. This is because attending to favorite possessions reduces consumers’ tendency to make social comparisons related to material resources and wealth, which otherwise arise when income inequality is high. Consequently, even when they perceive high income inequality, consumers feel less deprived relative to others, thereby buffering their SWB. These findings have meaningful consumer welfare implications. In particular, one way consumers can feel happier with their quality of life in an unequal society is to avoid comparing their material wealth to that of others and instead attend to the material possessions that are most special to them.
Social interaction can select for reduced ability
John McNamara & Max Wolf
Proceedings of the Royal Society: Biological Sciences, 26 October 2022
Abstract:
Animals, including humans, differ in a wide range of physical and cognitive abilities ranging from measures of running speed and physical strength to learning ability and intelligence. We consider the evolution of ability when individuals interact pairwise over their contribution to a common good. In this interaction, the contribution of each is assumed to be the best given their own ability and the contribution of their partner. Since there is a tendency for individuals to partially compensate for a low contribution by their partner, low-ability individuals can do well. As a consequence, for benefit and cost structures for which individuals have a strong response to partner’s contribution, there can be selection for reduced ability. Furthermore, there can be disruptive selection on ability, leading to a bimodal distribution of ability under some modes of inheritance.