Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/51652 
Year of Publication: 
2011
Series/Report no.: 
IZA Discussion Papers No. 5699
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
Individual perceptions of income distribution play a vital role in political economy and public finance models, yet there is little evidence regarding their origins or accuracy. This study examines how individuals form these perceptions and posits that systematic biases arise from the extrapolation of information extracted from reference groups. A tailored household survey provides original evidence on the significant biases in individuals' evaluations of their own relative position in the distribution. Furthermore, the data supports the hypothesis that the selection process into the reference groups is the source of those biases. Finally, this study also assesses the practical relevance of these biases by examining their impact on attitudes towards redistributive policies. An experimental design incorporated into the survey provides consistent information on the own ranking within the income distribution to a randomly selected group of respondents. Confronting agents' biased perceptions with this information has a significant effect on their stated preferences for redistribution. Those who had overestimated their relative position and thought of themselves relatively richer than they were demand higher levels of redistribution when informed of their true ranking. This relationship between biased perceptions and political attitudes provides an alternative explanation for the relatively low degree of redistribution observed in modern democracies.
Subjects: 
perceptions of income distribution
limited information
preferences for redistribution
field experiment
JEL: 
D31
D83
H24
H53
I30
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
274.83 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.