Description
When forming redistribution preferences, individuals will consider their own future income expectations, and not only their current income. In this project we seek to understand how long-term income expectations shape individuals’ preferences for redistribution. The project consists both of a theoretical part that sets up a model of how people form preferences for redistribution and an empirical part testing the theoretical model. The theoretical model extends recent arguments on the role of mobility and income expectations (Piketty, 1995; Benabou and Ok, 2001; Alesina and La Ferrara, 2005) by assuming that individuals base their redistribution preferences on the present-day value of their expected future income, and not only on short-term income fluctuations as captured by cross-sectional surveys.
The empirical part models the dynamics of income expectation formation and redistribution preferences jointly using individual-level panel data from the United Kingdom (the British Household Panel Study) and Germany (German Socio-Economic Panel). The proposed model consists of two parts: (1) The income process, based on an enhanced Mincer wage equation, describes the evolution of an individual’s income taking into account observed and unobserved heterogeneity. Individuals form expectations about their future income based on their current (imperfect) knowledge of this process. (2) The preference process models changes in redistribution preferences following changes in income expectations, while controlling for both observed and unobserved individual heterogeneity as well as preference persistence (cf. Stegmueller 2013).
Researchers
Professor Daniel Stegmueller, Professor of Quantitative Methods, University of Mannheim, d.stegmueller@gmail.com
Ms Linna Martén, PhD student, Uppsala University, linna.marten@nek.uu.se