Revisiting the redistribution hypothesis with perceived inequality and redistributive preferences

Abstract

It is a long-standing puzzle whether or not changes in economic inequality lead to changes in redistribution. However, there has been a lack of conclusive evidence about this relationship. Moreover, redistributive preferences as an intervening factor between inequality and redistribution, which are taken for granted implicitly or explicitly in redistribution theories, have been largely overlooked in the existing analyses. Besides, recent comparative studies of inequality and redistribution have started paying attention to inequality perceptions that deviate from actual inequality. Thus, this inquiry aims to reconstruct the classical redistribution theory by employing perceived inequality and preferences for redistribution and to test the reformulated redistribution hypotheses. One of the most challenging efforts for the analysis is to develop a country-level measure of perceived inequality. To this end, the Gini coefficient of perceived social position (perceived Gini) was first created by using data from 16 rounds of the International Social Survey Programme (ISSP 1987 to 2014), covering 34 OECD countries. The empirical results show robust evidence that perceived inequality, not actual inequality, is significantly associated with redistributive preferences, while preferences for redistribution do not translate into any type of redistribution.