Publications
Publications
- September 2014
- Journal of Monetary Economics
Income Inequality and Social Preferences for Redistribution and Compensation Differentials
By: William R. Kerr
Abstract
In cross-sectional studies, countries with greater income inequality typically exhibit less support for government-led redistribution and greater acceptance of wage inequality (e.g., United States versus Western Europe). If individual nations evolve along this pattern, a vicious cycle could form with reduced social concern amplifying primal increases in inequality due to forces like skill-biased technical change. Exploring movements around these long-term levels, however, this study finds mixed evidence regarding the vicious cycle hypothesis. On one hand, larger compensation differentials are accepted as inequality grows. This growth in differentials is of a smaller magnitude than the actual increase in inequality, but it is nonetheless positive and substantial in size. Weighing against this, growth in inequality is met with greater support for government-led redistribution to the poor. These patterns suggest that short-run inequality shocks can be reinforced in the labor market but do not result in weaker political preferences for redistribution.
Keywords
Citation
Kerr, William R. "Income Inequality and Social Preferences for Redistribution and Compensation Differentials." Journal of Monetary Economics 66 (September 2014): 62–78.