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  • September 2014
  • Article
  • Journal of Monetary Economics

Income Inequality and Social Preferences for Redistribution and Compensation Differentials

By: William R. Kerr
  • Format:Print
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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

Equality and Inequality; Income; Government and Politics

Citation

Kerr, William R. "Income Inequality and Social Preferences for Redistribution and Compensation Differentials." Journal of Monetary Economics 66 (September 2014): 62–78.
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About The Author

William R. Kerr

Entrepreneurial Management
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