Caste systems
College Socialization and the Economic Views of Affluent Americans
Tali Mendelberg, Katherine McCabe & Adam Thal
American Journal of Political Science, forthcoming
Abstract:
Affluent Americans support more conservative economic policies than the nonaffluent, and government responds disproportionately to these views. Yet little is known about the emergence of these consequential views. We develop, test, and find support for a theory of class cultural norms: These preferences are partly traceable to socialization that occurs on predominantly affluent college campuses, especially those with norms of financial gain, and especially among socially embedded students. The economic views of the student's cohort also matter, in part independently of affluence. We use a large panel data set with a high response rate and more rigorous causal inference strategies than previous socialization studies. The affluent campus effect holds with matching, among students with limited school choice, and in a natural experiment; and it passes placebo tests. College socialization partly explains why affluent Americans support economically conservative policies.
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Economic Recessions and Congressional Preferences for Redistribution
Maria Carreri & Edoardo Teso
Harvard Working Paper, July 2016
Abstract:
We analyze the roots of politicians' preferences for redistribution by exploring whether early life experiences have persistent, long-run effects on U.S. Members of Congress' voting records. We study whether having experienced an economic recession during early adulthood affected their positions on redistribution-specific bills during the period 1957-2012. We find that politicians who experienced a recession hold more conservative positions on redistribution, even compared to members of the same party in the same legislature. We rule out alternative accounts and show that experiencing a recession directly affects future politicians' personal preferences. In light of recent empirical evidence showing that voters become more supportive of redistribution following a recession, our findings suggest that macroeconomic shocks have a polarizing effect: recessions can create an ideological wedge between voters and their future representatives.
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Allison Troy et al.
Emotion, forthcoming
Abstract:
Emotion regulation is central to psychological health, and several emotion-regulation strategies have been identified as beneficial. However, new theorizing suggests the benefits of emotion regulation should depend on its context. One important contextual moderator might be socioeconomic status (SES), because SES powerfully shapes people’s ecology: lower SES affords less control over one’s environment and thus, the ability to self-regulate should be particularly important. Accordingly, effectively regulating one’s emotions (e.g., using cognitive reappraisal) could be more beneficial in lower (vs. higher) SES contexts. Three studies (N = 429) tested whether SES moderates the link between cognitive reappraisal ability (CRA; measured with surveys and in the laboratory) and depression. Each study and a meta-analysis of the 3 studies revealed that CRA was associated with less depression for lower SES but not higher SES individuals. Thus, CRA may be uniquely beneficial in lower SES contexts. More broadly, the effects of emotion regulation depend upon the ecology within which it is used.
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Measuring Income and Wealth at the Top Using Administrative and Survey Data
Jesse Bricker et al.
Brookings Papers on Economic Activity, Spring 2016, Pages 261-331
Abstract:
Most available estimates of U.S. wealth and income concentration indicate that the top shares are high and have been rising in recent decades, but there is some disagreement about specific levels and trends. Household surveys are the traditional data source used to measure the top shares, but recent studies using administrative tax records suggest that these survey-based top share estimates may not be capturing all of the increasing concentration. In this paper, we reconcile the divergent top share estimates, showing how the choices of data sets and methodological decisions affect levels and trends. Relative to the new and most widely cited top share estimates based on administrative tax data alone, our preferred estimates for both wealth and income concentration are lower and have been rising less rapidly in recent years.
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Experienced Inequality and Preferences for Redistribution
Christopher Roth & Johannes Wohlfart
University of Oxford Working Paper, July 2016
Abstract:
We examine in how far people’s experiences of income inequality affect their preferences for redistribution. We use several large nationally representative datasets and provide evidence that people with higher levels of inequality experience are less in favor of redistribution, after controlling for income, demographics, unemployment experiences and current macro-economic conditions. Moreover, we show that people with experiences of higher inequality believe that success in life depends on effort rather than luck and are more likely to believe that inequality increases motivation. Importantly, they are also less likely to consider the prevailing distribution of incomes to be unfair, suggesting that inequality experiences act as reference points about what is a fair division of resources. Finally, we conduct an online experiment to show that individuals randomly exposed to environments with higher inequality in the first stage of the experiment redistribute less in a subsequent behavioral measure.
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Economic Freedom & Happiness Inequality: Friends or Foes?
Daniel Bennett & Boris Nikolaev
Contemporary Economic Policy, forthcoming
Abstract:
This article examines the relationship between economic freedom and happiness inequality for a large sample of countries. We find that economic freedom is negatively associated with happiness inequality and robust to several alternative measures of happiness inequality, including the standard deviation, mean absolute difference, coefficient of variation, and Gini coefficient. Among the economic freedom areas, legal system and sound money are negatively correlated with happiness inequality. Drawing on the Engerman-Sokoloff hypothesis, we use a measure of factor endowments as an instrument for economic freedom to provide a further robustness test, finding a negative association between economic freedom and happiness inequality.
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Aytekin Guven & Arthur Sakamoto
Research in Social Stratification and Mobility, September 2016, Pages 41–50
Abstract:
Quantitative sociological research rarely investigates productivity but it is pertinent to the study of inequality and social stratification. In this analysis, we focus on the earnings differential between non-production and production employees and evaluate the extent to which it has a net effect on productivity across U.S. manufacturing industries. Contrary to assumptions of traditional economics, the findings indicate that this earnings differential increased significantly since the 1980’s but actually had a negative effect on productivity. There is also some evidence that this effect has become more negative in recent years. We interpret these findings as suggesting that, rather than inexorably enhancing economic efficiency, rising earnings differentials between non-production and production employees partly derive from changes in the relative bargaining power of these two class categories in the labor market.
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Empires of Inequality: Ancient China and Rome
Walter Scheidel
Stanford Working Paper, August 2016
Abstract:
This paper analyzes the dynamics of income and wealth inequality in two of the largest ancient empires, Han China and Rome. Pervasive structural similarities emerge from this comparative survey. In both cases, resource concentration at the top of society was greatly amplified by rent-seeking and predatory behavior that was commonly linked to privileged access to governmental functions and institutions. The exercise of or proximity to political power were crucial means of elite enrichment. Yet the same features also served to constrain the growth and persistence of large fortunes as the violent seizure and recirculation of elite wealth ensured ongoing redistribution within the ruling class and among its associates. In the long run, imperial stability was conducive to growing economic inequality.
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Money and Status: How Best to Incentivize Work
Pradeep Dubey & John Geanakoplos
Yale Working Paper, May 2016
Abstract:
Status is greatly valued in the real world, yet it has not received much attention from economic theorists. We examine how the owner of a firm can best combine money and status to get her employees to work hard for the least total cost. We find that she should motivate workers of low skill mostly by status and high skill mostly by money. Moreover, she should do so by using a small number of titles and wage levels. This often results in star wages to the elite performers. By analogy, the governance of a society should pay special attention to the status concerns of ordinary citizens, which may often be accomplished by reinforcing suitable social norms.
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Jonathan Kelley & M.D.R. Evans
Social Science Research, forthcoming
Abstract:
Income inequality has been contentious for millennia, a source of political conflict for centuries, and is now widely feared as a pernicious "side effect" of economic progress. But equality is only a means to an end and so must be evaluated by its consequences. The fundamental question is: What effect does a country's level of income inequality have on its citizens' quality of life, their subjective well-being? We show that in developing nations inequality is certainly not harmful but probably beneficial, increasing well-being by about 8 points out of 100. This may well be Kuznets's inverted "U": In the earliest stages of development some are able to move out of the (poorly paying) subsistence economy into the (better paying) modern economy, that higher pay increasing their well-being while simultaneously increasing inequality. In advanced nations, income inequality on average neither helps nor harms. Estimates are from random-intercept fixed-effects multi-level models, confirmed by over four dozen sensitivity tests. Data are from the pooled World Values/European Values Surveys, Waves 1 to 5 with 169 representative national samples in 69 nations, 1981 to 2009, and over 200,000 respondents, replicated and extended in the European Quality of Life Surveys.
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Long term trends in fair and unfair inequality in the United States
Andrew Hussey & Michael Jetter
Applied Economics, forthcoming
Abstract:
This article analyses the microeconomic sources of wage inequality in the United States from 1967–2012. Decomposing inequality into factors categorized by degree of personal responsibility, education explains over twice as much of inequality today as 45 years ago. However, neither hours worked nor education, industry, marital status, or geographical location can explain the rise in income inequality. In fact, ‘unfair’ inequality (income disparity derived from non-responsibility factors) has risen faster than ‘fair’ inequality (income disparity derived from responsibility factors), regardless of the set of variables chosen as fair sources of inequality. We further examine income inequalities within gender and racial groups, finding substantial heterogeneity. Overall, using micro data to understand the sources of inequality and how these changes over time can provide better information for policymakers motivated to combat rising inequality.
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Socioeconomic Gaps in Early Childhood Experiences: 1998 to 2010
Daphna Bassok et al.
AERA Open, August 2016
Abstract:
This study compares the early life experiences of kindergarteners in 1998 and 2010 using two nationally representative data sets. We find that (a) young children in the later period are exposed to more books and reading in the home, (b) they have more access to educational games on computers, and (c) they engage with their parents more, inside and outside the home. Although these increases occurred among low- and high-income children, in many cases the biggest changes were seen among the lowest-income children. Our results indicate narrowing but still large early childhood parental investment gaps. In addition, socioeconomic gaps in preschool participation grew over this period, despite substantial investments in public preschool. Implications for early socioeconomic achievement gaps are discussed.
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Inequality and the Mortgage Interest Deduction
Daniel Jacob Hemel & Kyle Rozema
Tax Law Review, forthcoming
Abstract:
The mortgage interest deduction is often criticized for contributing to after-tax income inequality. Yet the effects of the mortgage interest deduction on income inequality are more nuanced than the conventional wisdom would suggest. We show that the mortgage interest deduction causes high-income households (i.e., those in the top 10% and top 1%) to bear a larger share of the total tax burden than they would if the deduction were repealed. We further show that the effect of the mortgage interest deduction on income inequality is highly sensitive to the alternative scenario against which the deduction is evaluated. These findings demonstrate that claims about the distributional effects of the mortgage interest deduction depend critically on the counterfactual to which the status quo is compared. We extend our analysis to the deduction for state and local taxes and the charitable contribution deduction. We conclude that the appropriate counterfactual for distributional claims is dependent upon political context — and, in particular, on the feasible set of politically acceptable reforms up for consideration.
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Gender and Redistribution: Experimental Evidence
Thomas Buser, Louis Putterman & Joel van der Weele
Brown University Working Paper, August 2016
Abstract:
Gender differences in voting patterns and political attitudes towards redistribution are well-documented. The experimental gender literature suggests several plausible behavioral explanations behind these differences, relating to gender differences in confidence concerning future relative income position, risk aversion, and social preferences. We use data from lab experiments on preferences for redistribution conducted in the U.S. and several European countries to disentangle these potential mechanisms. We find that when choosing to redistribute income as a disinterested observer, women choose higher tax rates than men when initial income depends on performance in a task but not when it is randomly allocated. In a veil of ignorance condition with uncertainty about the income position of the decision maker, this effect is even stronger, leading to a 10ppt gender difference in average chosen tax rates in the performance conditions. We find that this gender difference is mainly due to men being more (over)confident about their task performance and the resulting income position, with gender differences in risk aversion and social preferences playing a minor role.
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Levels and Trends in the Income Mobility of U.S. Families, 1977−2012
Katharine Bradbury
Federal Reserve Working Paper, July 2016
Abstract:
Much of America’s promise is predicated on economic mobility — the possibility that people can move up and down the economic ladder during their lifetimes. Mobility is of particular consequence when economic disparities are increasing. Using panel data and mobility concepts and measures adapted from the literature, this paper examines 10-year income mobility levels and trends for U.S. working-age families during the time span 1977–2012. According to many measures, mobility, already limited in the 1978–1988 decade, declined over ensuing decades: families’ later-year incomes increasingly depended on their starting place, and the distribution of longer-term family incomes became less equal.
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Living in wealthy neighborhoods increases material desires and maladaptive consumption
Jia Wei Zhang, Ryan Howell & Colleen Howell
Journal of Consumer Culture, March 2016, Pages 297-316
Abstract:
Despite the presumed national economic benefits that result from high levels of discretionary spending, past studies suggest that material consumption decreases individual economic and subjective well-being. However, most research on the development of materialistic values has examined how persuasive materialistic messages cause materialism. We recruited 2702 participants to test our prediction that living in wealthy neighborhoods should increase material desires and maladaptive consumption in much the same way it decreases happiness. Interestingly, our regression models revealed that individual socioeconomic status (SES) and neighborhood SES have unique, and opposite, predictive patterns of material consumption. Specifically, after controlling for age, gender, and population size, greater neighborhood SES predicted greater desires for material consumption, more impulsive buying, and fewer savings behaviors while individual SES showed the reverse pattern. Our path model suggests that greater neighborhood SES leads to increased material desires, which then predicts more frequent impulsive buying, and fewer savings behaviors. We discuss why neighborhood SES might change values and consumer behaviors.
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Sunyee Yoon & Hyeongmin Christian Kim
Journal of Marketing Research, forthcoming
Abstract:
This research illustrates how perceived economic mobility moderates the linkage between materialism and impulsive spending. Using various data sources, four studies show that materialistic consumers do not easily engage in impulsive spending when they perceive high economic mobility, whereas they tend to spend impulsively when they perceive low economic mobility. However, perceived economic mobility functions in the opposite manner when the purchase is a means to achieve financial success. The authors trace this effect to the self-regulation process of materialistic consumers, such that when perceiving high economic mobility, these consumers regulate their behavior toward long-term financial success, sacrificing the pleasure of acquisitions in the present. By elucidating the important role that perceived economic mobility plays in impulsive spending, the current research sheds new light on consumer research and offers managerial and public policy implications.
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Progressive taxation in a tournament economy
Jeffrey Carpenter, Peter Hans Matthews & Benjamin Tabb
Journal of Public Economics, forthcoming
Abstract:
Not enough is known about the responsiveness of individuals, in particular those who work under different incentives, to changes in marginal tax rates. We ask whether changes in tax rates are less distortionary for workers engaged in a contest. To examine this potential rationale for a more progressive tax code, we first model the effort decisions of workers faced with progressive taxation under tournaments and piece rates. Because of the difficulty identifying any distortion that may be induced by the tax code in naturally occurring data, we then report on the results of a real-effort experiment based on this model. Consistent with a behavioral approach to public finance, we find that competitive tournament workers are less sensitive and hint, in our discussion, at the possible welfare benefits of progressive taxation in tournament economies.
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Unions and Income Inequality: A Panel Cointegration and Causality Analysis for the United States
Dierk Herzer
Economic Development Quarterly, August 2016, Pages 267-274
Abstract:
In this research note it is shown that, by applying cointegration and causality techniques to U.S. state-level panel data, there is a negative long-run relationship between unionization and income inequality in the United States, and that causality is unidirectional from unionization to inequality.
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Carlos Góes
IMF Working Paper, August 2016
Abstract:
Thomas Piketty's Capital in the Twenty-First Century puts forth a logically consistent explanation for changes in income and wealth inequality patterns. However, while rich in data, the book provides no formal empirical testing for its theoretical causal chain. In this paper, I build a set of Panel SVAR models to check if inequality and capital share in the national income move up as the r-g gap grows. Using a sample of 19 advanced economies spanning over 30 years, I find no empirical evidence that dynamics move in the way Piketty suggests. Results are robust to several alternative estimates of r-g.
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Effort, luck, and voting for redistribution
Lars Lefgren, David Sims & Olga Stoddard
Journal of Public Economics, forthcoming
Abstract:
We conduct an experiment to determine how the correspondence between economic rewards and effort, as opposed to luck, affects subjects' ex post voting over redistribution. We find that a large, statistically significant proportion of both high- and low-payoff voters are willing to vote contrary to their self-interest in favor of groups that exert proportionately more effort. We confirm these results in an additional, distinct sample. We also show that when subjects' own effort is greater than the group's average effort level, they exhibit greater self-interest in voting for redistribution compared to subjects whose effort is below average. Our results have implications for both understanding individual redistributive preferences and group voting behavior.
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Bright Minds, Big Rent: Gentrification and the Rising Returns to Skill
Lena Edlund, Cecilia Machado & María Micaela Sviatschi
U.S. Census Bureau Working Paper, August 2016
Abstract:
In 1980, Census data indicate, housing prices in large US cities rose with distance from the city center. By 2010, that relationship had reversed. We propose that this development can be traced to greater labor supply of high-income households which reduced the tolerance for commuting. In a tract-level data set covering the 27 largest US cities, years 1980-2010, we find support for our hypothesis using a Bartik-type demand shifter for skilled labor: full-time skilled workers favor proximity to the city center and their increased presence can account for the rising price premium commanded by centrality.
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Have Supra-Normal Returns to Corporations Been Increasing Over Time?
Laura Power & Austin Frerick
U.S. Department of the Treasury Working Paper, July 2016
Abstract:
This paper examines how the fraction of the C corporation tax base attributable to the normal return has been changing over time. Using a panel of micro-economic tax return data from 1992 to 2013, we compute the normal return fraction for all nonfinancial C corporations, for multinationals, and for industries. The results show that the normal return has been gradually declining over time, averaging about 40% in the first half of the period and 25% in the second half of the period. This suggests that supra-normal returns are becoming more important to the tax base.
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On the Distribution of the Welfare Losses of Large Recessions
Dirk Krueger, Kurt Mitman & Fabrizio Perri
NBER Working Paper, July 2016
Abstract:
How big are the welfare losses from severe economic downturns, such as the U.S. Great Recession? How are those losses distributed across the population? In this paper we answer these questions using a canonical business cycle model featuring household income and wealth heterogeneity that matches micro data from the Panel Study of Income Dynamics (PSID). We document how these losses are distributed across households and how they are affected by social insurance policies. We find that the welfare cost of losing one's job in a severe recession ranges from 2% of lifetime consumption for the wealthiest households to 5% for low-wealth households. The cost increases to approximately 8% for low-wealth households if unemployment insurance benefits are cut from 50% to 10%. The fact that welfare losses fall with wealth, and that in our model (as in the data) a large fraction of households has very low wealth, implies that the impact of a severe recession, once aggregated across all households, is very significant (2.2% of lifetime consumption). We finally show that a more generous unemployment insurance system unequivocally helps low-wealth job losers, but hurts households that keep their job, even in a version of the model in which output is partly demand determined, and therefore unemployment insurance stabilizes aggregate demand and output.
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Can Political Inequalities Be Educated Away? Evidence from a Large-Scale Reform
Karl-Oskar Lindgren, Sven Oskarsson & Christopher Dawes
American Journal of Political Science, forthcoming
Abstract:
Over the years, many suggestions have been made on how to reduce the importance of family background in political recruitment. In this study, we examine the effectiveness of one such proposal: the expansion of mass education. We utilize a difference-in-difference strategy to analyze how a large school reform launched in Sweden in the 1950s, which lengthened schooling and postponed tracking, affected the likelihood of individuals with different family backgrounds to run for public office. The data come from public registers and pertain to the entire Swedish population born between 1943 and 1955. The empirical analysis provides strong support for the view that improved educational opportunities for individuals from disadvantaged backgrounds can be an effective means to reduce the social bias of elected assemblies.
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The Scandinavian Fantasy: The Sources of Intergenerational Mobility in Denmark and the U.S
Rasmus Landersø & James Heckman
NBER Working Paper, July 2016
Abstract:
This paper examines the sources of differences in social mobility between the U.S. and Denmark. Measured by income mobility, Denmark is a more mobile society, but not when measured by educational mobility. There are pronounced nonlinearities in income and educational mobility in both countries. Greater Danish income mobility is largely a consequence of redistributional tax, transfer, and wage compression policies. While Danish social policies for children produce more favorable cognitive test scores for disadvantaged children, these do not translate into more favorable educational outcomes, partly because of disincentives to acquire education arising from the redistributional policies that increase income mobility.
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Economic performance and public concerns about social class in twentieth-century books
Yunsong Chen & Fei Yan
Social Science Research, September 2016, Pages 37–51
Abstract:
What is the association between macroeconomic conditions and public perceptions of social class? Applying a novel approach based on the Google Books N-gram corpus, this study addresses the relationship between public concerns about social class and economic conditions throughout the twentieth century. The usage of class-related words/phrases, or “literary references to class,” in American English-language books is related to US economic performance and income inequality. The findings of this study demonstrate that economic conditions play a significant role in literary references to class throughout the century, whereas income inequality does not. Similar results are obtained from further analyses using alternative measures of class concerns as well as different corpora of English Fiction and the New York Times. We add to the social class literature by showing that the long-term temporal dynamics of an economy can be exhibited by aggregate class concerns. The application of massive culture-wide content analysis using data of unprecedented size also represents a contribution to the literature.
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Popular Acceptance of Inequality due to Brute Luck and Support for Classical Benefit-Based Taxation
Matthew Weinzierl
NBER Working Paper, July 2016
Abstract:
U.S. survey respondents’ views on distributive justice are shown to differ in two specific, related ways from what is conventionally assumed in modern optimal tax research. A large share of respondents, and in some cases a large majority, resist the full equalization of inequality due to brute luck that standard analyses would recommend. Related, a similar share prefer a classical benefit-based logic for the assignment of taxes over the conventional logic of diminishing marginal social welfare. Moreover, these two views are linked: respondents who more strongly resist equalization are more likely to prefer the classical benefit-based principle. Together, these results suggest that a large share of the American public views the allocation of pre-tax incomes as relevant to optimal tax policy and — at least in part — justly deserved unless proven otherwise, judgments that are inconsistent with standard welfarist objectives.
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Government's Unequal Attentiveness to Citizens' Political Priorities
Patrick Flavin & William Franko
Policy Studies Journal, forthcoming
Abstract:
An accumulation of evidence suggests citizens with low incomes have relatively little influence over the policy decisions made by lawmakers in the United States. However, long before elected officials are asked to cast a final vote on a bill's passage, an equally important decision has already been made: the decision for government to focus its limited attention and agenda space on the issue at all. Therefore, it is possible that political inequality is infused earlier in the policymaking process at the agenda-setting stage if the issues held important by some citizens are given attention while the issues held important by others are not. To investigate this question, we develop novel state-level measures of citizens' issue priorities and find sizable differences in which issues poor and rich citizens think are most important and deserving of government attention. We then use bill introduction data from state legislatures to measure government attention and uncover evidence that state legislators are less likely to act on an issue when it is prioritized by low-income citizens as compared to affluent citizens. These findings have important implications for our understanding of political equality and the functioning of American democracy.