Getting the Capital
Framing economic inequality and policy as group disadvantages (versus group advantages) spurs support for action
Pia Dietze & Maureen Craig
Nature Human Behaviour, forthcoming
Given the near-historic levels of economic inequality in the United States, it is vital to understand when and why people are motivated to reduce it. We examine whether the manner in which economic inequality and policy are framed -- in terms of either upper-socio-economic-class advantages or lower-socio-economic-class disadvantages -- influences individuals’ reactions to inequality. Across five studies, framing redistributive policy (Study 1) as disadvantage-reducing (versus advantage-reducing) and economic inequality (Studies 2–5) as lower-class disadvantages (versus upper-class advantages or a control frame) enhances support for action to reduce inequality. Moreover, increased support is partly driven by perceptions that inequality is more unjust if framed as lower-class disadvantages. Using diverse methodologies (for example, social media engagement on Facebook) and nationally representative samples of self-reported upper-class and lower-class individuals, this work suggests that the ways in which economic inequality is communicated (for example, by the media) may reliably influence people’s reactions to and concern for the issue.
The Economic Consequences of Major Tax Cuts for the Rich
David Hope & Julian Limberg
London School of Economics Working Paper, December 2020
This paper uses data from 18 OECD countries over the last five decades to estimate the causal effect of major tax cuts for the rich on income inequality, economic growth, and unemployment. First, we use a new encompassing measure of taxes on the rich to identify instances of major reductions in tax progressivity. Then, we look at the causal effect of these episodes on economic outcomes by applying a nonparametric generalization of the difference-in-differences indicator that implements Mahalanobis matching in panel data analysis. We find that major reforms reducing taxes on the rich lead to higher income inequality as measured by the top 1% share of pre-tax national income. The effect remains stable in the medium term. In contrast, such reforms do not have any significant effect on economic growth and unemployment.
The Social Side of Early Human Capital Formation: Using a Field Experiment to Estimate the Causal Impact of Neighborhoods
John List, Fatemeh Momeni & Yves Zenou
NBER Working Paper, December 2020
The behavioral revolution within economics has been largely driven by psychological insights, with the sister sciences playing a lesser role. This study leverages insights from sociology to explore the role of neighborhoods on human capital formation at an early age. We do so by estimating the spillover effects from a large-scale early childhood intervention on the educational attainment of over 2,000 disadvantaged children in the United States. We document large spillover effects on both treatment and control children who live near treated children. Interestingly, the spillover effects are localized, decreasing with the spatial distance to treated neighbors. Perhaps our most novel insight is the underlying mechanisms at work: the spillover effect on non-cognitive scores operate through the child's social network while parental investment is an important channel through which cognitive spillover effects operate. Overall, our results reveal the importance of public programs and neighborhoods on human capital formation at an early age, highlighting that human capital accumulation is fundamentally a social activity.
Income More Reliably Predicts Frequent Than Intense Happiness
Jon Jachimowicz et al.
Social Psychological and Personality Science, forthcoming
There is widespread consensus that income and subjective well-being are linked, but when and why they are connected is subject to ongoing debate. We draw on prior research that distinguishes between the frequency and intensity of happiness to suggest that higher income is more consistently linked to how frequently individuals experience happiness than how intensely happy each episode is. This occurs in part because lower-income individuals spend more time engaged in passive leisure activities, reducing the frequency but not the intensity of positive affect. Notably, we demonstrate that only happiness frequency underlies the relationship between income and life satisfaction. Data from an experience sampling study (N = 394 participants, 34,958 daily responses), a preregistered cross-sectional study (N = 1,553), and a day reconstruction study (N = 13,437) provide empirical evidence for these ideas. Together, this research provides conceptual and empirical clarity into how income is related to happiness.
Economic inequality affects perceived normative values
Ángel Sánchez-Rodríguez, Rosa Rodríguez-Bailón & Guillermo
Willis Group Processes & Intergroup Relations, forthcoming
The degree of economic inequality may lead to different environments where people develop motives and behaviours that lend them higher chances of survival. However, the specific features attributed to an environment with a particular level of economic inequality have received little research attention. In this research, we explored how perceived economic inequality may influence the values inferred as normative in society. Results from three studies, one correlational and two experimental, showed that perceived normative values change according to the degree of perceived economic inequality in a given context: higher levels of perceived economic inequality are related to normative self-enhancement values, whereas lower levels of perceived economic inequality are related to normative self-transcendence values. These results are discussed in terms of how information on economic inequality is used to build a general perception of the normative climate in society and, accordingly, of the values that would best guide behaviours.
Immigration Attitudes and White Americans’ Responsiveness to Rising Income Inequality
American Politics Research, forthcoming
Despite decades of rising inequality, there has been little observed increase in American public support for redistribution. This is puzzling because majorities of Americans profess to be aware of and opposed to high inequality. I argue that this lack of responsiveness is not due to public ignorance of, nor apathy toward, inequality but rather, in part, to negative feelings toward immigrants, a growing, politically salient, and negatively stereotyped “out-group” that is widely viewed as a target of redistributive spending. To test this, I combine data on state-level income inequality with survey data from the 1992 to 2016 Cumulative ANES. I find that growing inequality can prompt support for redistribution but that this depends, in part, on peoples’ immigration attitudes. Overall, these results suggest that immigration has important implications for economic redistribution in an era of high, and rising inequality.
The Long-run Effects of the 1930s HOLC “Redlining” Maps on Place-based Measures of Economic Opportunity and Socioeconomic Success
Daniel Aaronson et al.
Regional Science and Urban Economics, forthcoming
We estimate the long-run effects of the 1930s Home Owners Loan Corporation (HOLC) redlining maps on census tract-level measures of socioeconomic status and economic opportunity from the Opportunity Atlas (Chetty et al. 2018). We use two identification strategies to identify the long-run effects of differential access to credit along HOLC boundaries. The first compares cross-boundary differences along actual HOLC boundaries to a comparison group of boundaries that had similar pre-existing differences as the actual boundaries. A second approach uses a statistical model to identify boundaries that were least likely to have been chosen by the HOLC. We find that the maps had large and statistically significant causal effects on a wide variety of outcomes measured at the census tract level for cohorts born in the late 1970s and early 1980s.
Gentrification and Neighborhood Change: Evidence from Yelp
Edward Glaeser, Michael Luca & Erica Moszkowski
NBER Working Paper, December 2020
How does gentrification transform neighborhoods? Gentrification can harm current residents by increasing rental costs and by eliminating old amenities, including distinctive local stores. Rising rents represent redistribution from tenants to landlords and can therefore be offset with targeted transfers, but the destruction of neighborhood character can – in principle – reduce overall social surplus. Using Census and Yelp data from five cities, we document that while gentrification is associated with an increase in the number of retail establishments overall, it is also associated with higher rates of business closure and higher rates of transition to higher price points. In Chicago and Los Angeles especially, non-gentrifying poorer communities have dramatically lower turnover than richer or gentrifying communities. However, the primary transitions appear to the replacement of stores that sell tradable goods with stores that sell non-tradable services. That transition just seems to be slower in poor communities that do not gentrify. Consequently, the business closures that come with gentrification seem to reflect the global impact of electronic commerce more than the replacement of idiosyncratic neighborhood services with generic luxury goods.
Who are the champions? Inequality, economic freedom and the Olympics
Vadim Kufenko & Vincent Geloso
Journal of Institutional Economics, forthcoming
Does inequality affect outcomes? To answer, we use the microcosm of Olympic competitions by asking whether a country's level of inequality diminishes its performance. If it does, is it conditional on institutional factors? We argue that the ability of economically free societies to win medals will not be affected by inequality. In these societies, institutions generate incentives to invest in the talents of individuals at the bottom of the income distribution (potential athletes otherwise constrained in the ability to expend resources on training). These effects mitigate those of inequality. The incentives that promote investments in skills across the income distribution are weaker in unfree societies and they cannot mitigate the effects of inequality. Using the Olympics of 2016 in combination with the Economic Freedom data, we find that inequality only matters in determining medal numbers for unfree countries. We link these results to inequality and its effects on economic outcomes.
Effects of Income Distribution Changes on Assortment Size in the Mainstream Grocery Channel
Rafael Becerril Arreola, Randolph Bucklin & Raphael Thomadsen
University of South Carolina Working Paper, July 2020
The authors study the effect of changes in the U.S. income distribution on assortment size in the mainstream grocery channel. Census demographics for 1,711 counties are matched to local assortment data from Nielsen in 944 grocery product categories from 2007 to 2013. The authors show that – holding other demographics constant – assortment size increases with higher average income but decreases with greater income dispersion. This pattern holds for several specifications of assortment at the local level: the number of category UPCs, the number of brands, the number of products per brand, as well as both horizontal and vertical dimensions of assortment. The results suggest that increased income dispersion (holding other factors constant) reduces both horizontal and vertical differentiation. The effect sizes are similar for private labels and branded products, but large brands lose proportionally more UPCs than small brands when income dispersion rises. Potential mechanisms underlying the results are also explored, with evidence that a hollowing out of the middle class along with Engel’s law of expenditure explain a significant portion of this effect. The findings also offer insights for CPG manufacturers that might help them allocate resources to expand shelf presence or defend current positions.
Self-Fulfilling Prophecies, Quasi Non-Ergodicity & Wealth Inequality
Roger Farmer & Jean-Philippe Bouchaud
NBER Working Paper, December 2020
We construct a model where people trade assets contingent on an observable signal that reflects public opinion. The agents in our model are replaced occasionally and each person updates beliefs in response to observed outcomes. We show that the distribution of the observed signal is described by a quasi non-ergodic process and that people continue to disagree with each other forever. Our model generates large wealth inequalities that arise from the multiplicative nature of wealth dynamics which makes successful bold bets highly profitable. The flip side of this statement is that unsuccessful bold bets are ruinous and lead the person who makes such bets into poverty. People who agree with the market belief have a low expected subjective gain from trading. People who disagree may either become spectacularly rich, or spectacularly poor.
Dafna Goor, Anat Keinan & Nailya Ordabayeva
Journal of Consumer Research, forthcoming
Prior research has established that status threat leads consumers to display status-related products such as luxury brands. While compensatory consumption within the domain of the status threat (e.g., products associated with financial and professional success) is the most straightforward way to cope with comparisons to high-status individuals, we examine when, why, and how consumers cope with status threat by choosing to “pivot” and display success and achievements in alternative domains. Using a mixed-method approach combining field and lab experiments, incentive-compatible designs, netnographic analysis, observational study, and qualitative interviews, we show that consumers cope with status threat by signaling their status and success in alternative domains. We conceptualize this behavior as “status pivoting” and show that it occurs because experiencing status threat motivates consumers to adopt beliefs about trade-offs across domains; that is, to believe that status acquisition requires trade-offs and hence others’ success in one domain comes at the cost of success in another domain. We compare the prevalence and appeal of status pivoting to restoring status within the domain of the threat. We further examine when consumers are likely to engage in status pivoting and show that this effect is attenuated when high status within the domain of the threat is attainable.