Higher support for redistribution by individuals with high income & lower demand for redistribution by those with low income

Sabatini, Fabio and Ventura, Marco and Yamamura, Eiji and Zamparelli, Luca (2017): Fairness and the unselfish demand for redistribution by taxpayers and welfare recipients. Ludwig-Maximilians Universitaet Muenchen, https://mpra.ub.uni-muenchen.de/82081/

Also: Fairness and the Unselfish Demand for Redistribution by Taxpayers and Welfare Recipients. Fabio Sabatini et al. Southern Economic Journal, December 12 2019. https://doi.org/10.1002/soej.12416

Abstract: We illustrate how the desire to live in a fair society that rewards individual effort and hard work triggers an unselfish though rational demand for redistribution. This leads the well off to prefer higher taxes and the poor to reject extreme progressivity. We then provide evidence of these behaviors using a nationally representative survey from Italy. Our empirical analysis confirms that a stronger aversion to unfair distributive outcomes is associated with a higher support for redistribution by individuals with high income and to a lower demand for redistribution by those with low income.

Keywords: fairness, income distribution, inequalities, taxation, Welfare, redistribution, free-riding, civic capital, social capital

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In this paper, we studied the interplay between sensitivity to fairness and the individual demand for redistribution. First, we theoretically illustrated how the desire to live in a fair society where people’s income depends on merit instead of luck can trigger an unselfish support for redistribution. An increase in the aversion to unfairness can lead the affluent to demand more redistribution even if they will bear its cost without sharing its benefits, and the poor to desire less redistribution thereby renouncing to the advantages related to higher social spending.

We then found evidence of this behavior in a representative sample of Italian taxpayers. The empirical analysis confirmed that an increase in the aversion to unfair allocations is associated with opposing attitudes towards redistribution depending on income. The size of the marginal effects is economically relevant and overcomes that of income. Of course we do not intend to establish any normative presumption equating fairness with support for big governments and high welfare spending. Rather, we show that beliefs about fairness can interact with income in determining the individual preferences for redistribution in ways that were not previously theorized and tested in the literature.

Even if we controlled for the bias of the estimates using the procedure proposed by Wooldridge (2002), we lack a clear identification mechanism standing from external information. This suggests caution in the interpretation of the coefficients. Nonetheless, the empirical evidence was shown to be fully compatible with our theoretical reasoning and also revealed interesting insights concerning, for example, the size of the influence exerted by the selfish and unselfish motives for desiring redistribution. These results have relevant policy implications, as the share of people declaring support for redistribution has been found to be a strong predictor of welfare spending and of the size of government (Alesina and Angeletos, 2005; Guiso et al. 2006).