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Are People Inequality Averse, and Do They Prefer Redistribution by the State?: Evidence from German Longitudinal Data on Life Satisfaction ; A Revised Version

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  • Johannes Schwarze
  • Marco Härpfer
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    Abstract

    We link life-satisfaction data to inequality of the pre- and post-government income distribution at the regional level, to estimate the degree of inequality aversion. Three different inequality measures are used. In addition, we investigate whether a reduction in inequality by the state increases individual well-being. We find only weak evidence that Germans are inequality averse. Inequality reduction by the state does not increase well being. On the contrary, inequality reduction imposes an excess burden on middle-income earners. The paper uses data from the German Socio-economic Panel Study (GSOEP) from 1985 to 1998.

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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.41264.de/dp407.pdf
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    Bibliographic Info

    Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 407.

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    Length: 23 p.
    Date of creation: 2004
    Date of revision:
    Handle: RePEc:diw:diwwpp:dp407

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    Keywords: Inequality aversion; Redistribution; Life satisfaction; Panel data;

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    2. Corneo, Giacomo & Gruner, Hans Peter, 2002. "Individual preferences for political redistribution," Journal of Public Economics, Elsevier, Elsevier, vol. 83(1), pages 83-107, January.
    3. Buhmann, Brigitte, et al, 1988. "Equivalence Scales, Well-Being, Inequality, and Poverty: Sensitivity Estimates across Ten Countries Using the Luxembourg Income Study (LIS) Database," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 34(2), pages 115-42, June.
    4. DiTella, Rafael & MacCulloch, Robert & Oswald, Andrew J., 2001. "Preferences over inflation and unemployment: Evidence from surveys of happiness," ZEI Working Papers, ZEI - Center for European Integration Studies, University of Bonn B 03-2001, ZEI - Center for European Integration Studies, University of Bonn.
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    7. Di Tella, Rafael & Alesina, Alberto & MacCulloch, Robert, 2004. "Inequality and Happiness: Are Europeans and Americans Different?," Scholarly Articles 4553007, Harvard University Department of Economics.
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    10. Roland Bénabou & Efe A. Ok, 2001. "Social Mobility And The Demand For Redistribution: The Poum Hypothesis," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(2), pages 447-487, May.
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    13. Hochman, Harold M & Rodgers, James D, 1969. "Pareto Optimal Redistribution," American Economic Review, American Economic Association, American Economic Association, vol. 59(4), pages 542-57, Part I Se.
    14. Johannes Schwarze, 1994. "Subjective Measures of Economic Well-Being and the Influence of Income Uncertainty," Discussion Papers of DIW Berlin 94, DIW Berlin, German Institute for Economic Research.
    15. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
    16. Fong, Christina, 2001. "Social preferences, self-interest, and the demand for redistribution," Journal of Public Economics, Elsevier, Elsevier, vol. 82(2), pages 225-246, November.
    17. Hans Peter Gruner & Giacomo Corneo, 2000. "Social Limits to Redistribution," American Economic Review, American Economic Association, American Economic Association, vol. 90(5), pages 1491-1507, December.
    18. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 104(424), pages 648-59, May.
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    20. Johannes Schwarze, 2003. "Using Panel Data on Income Satisfaction to Estimate Equivalence Scale Elasticity," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 49(3), pages 359-372, 09.
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