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Preference for ridistribution

'Preference for ridistribution '
Preferences for Redistribution? Alberto Alesina and Paola Giuliano Harvard University and UCLA June 2008 Revised January 2009 Abstract This paper discusses what determines the preferences of individuals for redistribution. We review the theoretical literature and provide a frame- work to incorporate various eff ects previously studied separately in the literature. We then examine empirical evidence for the US, using the Gen- eral Social Survey, and for a large set of countries, using the World Values Survey. The paper reviews previously found results and provides several new ones. We emphasize, in particular, the role of historical experiences, cultural factors and personal history as determinants of preferences for equality or tolerance for inequality. 1Introduction Economists traditionally assume that individuals have preferences defi ned over their lifetime consumption (income) and maximize their utility under a set of constraints.The same principle applies to preferences for redistribution.It follows that maximization of utility from consumption and leisure and some aggregation of individual preferences determines the equilibrium level of taxes and transfers.1Note the inter-temporal nature of this maximization problem: preferences for redistribution depend not only on where people are today in the income ladder but also on where they think they will be in the future if redistributive policies are long-lasting. The level of inequality of a society may aff ect some individuals’ income in- directly. For instance the level of inequality may aff ect crime and some people may be more or less subject to the risk of criminal activities. But, in addition, individuals have views regarding redistribution that go beyond the current and future states of their pocketbooks. These views refl ect diff erent ideas about ?Prepared for the Handbook of Social Economics. We thank David Laibson, Romain Wacziarg and, especially, Alberto Bisin for very useful comments and suggestions. 1See Persson and Tabellini (2002) and Drazen (2002) for a broad review of political eco- nomic models. 1 what an appropriate shape of the income distribution is: in practice, views about acceptable levels of inequality and/or poverty. Explaining the origin of these ideas (which eventually translate into policies via some mechanism of aggregation of preferences) implies bringing into the picture variables that go beyond the current and expected consumption (and leisure) of the individual consumer/worker/voter. Needless to say, standard neoclassical general equilib- rium theory can accommodate altruism, i.e., a situation in which one agent cares also about the utility of somebody else. But altruism is not an unpredictable “social noise“ to be randomly sprinkled over individuals. Altruism, or, to put it diff erently, preferences for redistribution that do not maximize private benefi ts strictly defi ned, has certain predictable and interesting features. Of course, this does not mean that w
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