I stván György Tóth – Tamás Keller:

1. WP5: Political and cultural impacts Draft of Discussion paper 5.2.3. Prepared to the Y1 meeting in Milan 3-5 February 2011 István György Tóth – Tamás Keller: Income distributions, inequality perceptions and redistributive claims in European societies

2. Outline of the paper • Introduction • Research questions • Data and definitions • Inequalities, their perceptions and redistributive attitudes across countries (macro perspectives) • Micro- and socio-economic correlates (multivariate analysis, individual and contextual effects) • Summary and conclusions

3. Broad frame of understanding: Inequality voting redistribution for against The proposition by Meltzer & Richard (1981): Country U is more unequal than country E. Therefore, it redistributes more (tU > tE) No of persons BUT: Empirically, this is not really the case. The evidence is rather mixed! tE tU incomes mean Median (U Median (E)

4. An even broader frame of understanding Redistribution Translation mechanisms (from policies to modified inequalities) Tax-transfer shemes Regulation, etc… Translation mechanisms (2): from demand for redistribution to policies Macro (political system): Actors (parties, bureaucracies, etc) Electoral rules (majoritarian, proportional etc) Translation mechanisms (1): socio-economics to redistributive attitudes Micro (motivations): Perceptions Interests Attitudes Inequality

5. People base their opinions/judgements on an assessment of their relative positions: what if they misjudge their positions? Their motivation depends on self interest: what about alternative motivations (public values, altruism, convictions about „good, caring society” etc) Self interest taken at direct money terms What about expectations (of their mobility, of their potential gains from redistribution, etc)? What about the insurance motive? Tax rate and expenditure defined unequivocally: in reality both taxes and expenditures are more complex (also in their incidence!) Voters do not take moral standing about recipients (what if they do about the deserving and the undeserving poor)? The political system translates preferences into public spending in a straightforward way: this is not (always) the case The redistribution affects the final shape of inequalities a great deal (also: reverse causality..) Theoretical framework A list of factors why empirics might deviate from MR predictions

6. Theoretical framework Redistribution Translation mechanisms (from policies to modified inequalities) Tax-transfer shemes Regulation, etc… Translation mechanisms (2): from demand for redistribution to policies Macro (political system): Actors (parties, bureaucracies, etc) Electoral rules (majoritarian, proportional etc) Translation mechanisms (1): socio-economics to redistributive attitudes Micro (motivations): Perceptions Interests Attitudes Inequality

7. Q1: What individualsocio-economic characteristics drive (the formation of redistributive preferences? Q2: How do various contextual factors (most importantly: aggregate income inequalities) shape redistributive preferences? Q3: What effect the structure of inequality has on the attitudes of the middle income classes? Research questions

8. Data and Definitions The empirical model used in the analysis • We want to predict redistributive preference (RPI) by individual attributes (X) AND by contextual variables (Z) • RPI = a + bXij + cZj +U0j + Eij • i = The number of individuals in the analysis (Level 1) • j = The number of countries (Level 2) • a = Intercept • b and c = Coefficients at individual and country level, respectively • Eij= Level 1 residual • U0j =Level 2 residual • The effects of individual attributes on RPI were predictedwith simple OLS regression (with clustered standard error) • RPI = a + bXij + Eij

9. Data and Definitions Measuring redistribution preference All the individual level data come fromEurobarometer (EB: 72.1) Vertical redistribution

10. Data and Definitions Measuring redistribution preference Jobs Education Social expenditures Everyone is provided for

11. Data and Definitions Measuring redistribution preference RPI is an index coming from principal component analysis Corr. with RPI

12. Data and Definitions The mean value of RPI by countries

13. Data and Definitions Measuring material status No objective income data was available!!! 1 2 3 4 5 6 missing • “much higher” income (qa43) than 2000 Euro/months (qa42) = 6 • “much lower” income (qa43) than 500 Euro/month (qa42) = 1 • make ends meet (qa35) “very easy” = 6 • make ends meet (qa35) “with great difficulty” = 1

14. Data and Definitions Independent variables (X) in the regression models RPI = a + bXij + Eij

15. Data and Definitions Independent variablesin the regression models IV: the variable on living standard improvement ≠social mobility. V: meaning of the question: is poverty private failure or social failure?

16. Data and Definitions Independent variablesin the regression models

17. Data and Definitions Contextual variables (Z) in the regression models All contextual data come from Luxembourg Income Study (LIS) We used use distance-based rather than variance based inequality measures RPI = a + bXij + cZj +U0j + Eij Countries from LIS wave VI: AT, DE, DK, ES, FI, GR, HU, IT LV, PL, SE, UK Countries from LIS wave V: BE, EE, IE, NL, SI

18. Macro level analysis Inequalitiesand redistributive attitudes across countries Positive relationship between inequality and RPI RPI is more influenced by the lower part (below median) of the income distribution, than by the upper part (above median).

19. Macro level analysis Inequalitiesand redistributive attitudes across countries Positive relationship between inequality and RPI Gini performs weaker than the distance based measures

20. Q1: individual covariates - multivariate analysis OLS results at individual level Country dummies in the model Expectations Demography Failure Values Mat. int. Reference categories: Female, Age 41-50, Secondary school, Small town, Employed, Future expectation: the same, Failure attribution: unluck. *** p<1%; ** p<5%,; * p<10

21. Q1: individual covariates - multivariate analysis Findings (OLS results) • People with low material resources have a significantly larger appetite for redistribution • Those expecting a worsening position have a significant positive evaluation of redistribution • People believing that the poor get into poverty because of laziness have a much smaller redistributive taste • Those who think poverty is a consequence injustice show larger RPI • People evaluating poverty a problem and/or think large tensions between social groups are more pro-redistributive

22. Q1: individual covariates - multivariate analysis Adj. R square change attributed to different explanatory mechanisms Robust explanatory variables 3.0% 1.9% 4.4%

23. Q2. The role of contextual factors Random intercept models, different inequality measures In countries with large inequalities, respondent are more pro-redistribution. Between-country differences in RPI can partly be attributed to inequality. Model VI. 7.78% *** p<1%; ** p<5%,; * p<10

24. Q2. The role of contextual factors Is the impact of material status different in various kinds of inequality regimes? Opinion differences in unequal countries -0.02** -0.1*** -0.05 Opinion differences in equal countries *** p<1%; ** p<5%,; * p<10 Low inequalities: DK, NL, SE, FI / Middle inequalities: SI, AT, BE, LU, DE, HU, IE / Large inequalities: PL, UK, ES, GR, IT, EE

25. Q2. The role of contextual factors Standardized regression coefficients of material status and inequality The difference between rich and poor respondents’ RPI is the largest in countries where inequalities are in the middle range. Standardized regression coefficients are calculated from country level OLS regressions, using Model VI. The level of significance used in the grouping (p<0.1)

26. Summary/Conclusion • Demand for redistribution, in addition to rational self interest, is also driven by general attitudes about the role of personal responsibility in one’s own fate, of general beliefs about causes of poverty and the like. • The overall levels of income inequalities do explain (part of) cross country variance in demand for redistribution. • Larger aggregate inequalities do correspond to larger redistributive demands (on country level). • In countries having larger level of aggregate inequalities the general redistributive preference (of the rich, of the middle and of the poor) is higher. • The slope of this socio-economic gradient seems, however, steeper in countries with middle inequality levels.

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28. Multivariate analysis One possible explanationon the difference between rich and poor in various kinds of inequality regimes The richer the society, the less doincome explains individuals’ preferences. Standardized regression coefficients are calculated from country level OLS regressions, using Model VI. *Economic Development and Happiness: Evidence from 32 Nations