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Social Mobility and the Demand for Redistribution: The POUM Hypothesis

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  • Roland Benabou
  • Efe A. Ok

Abstract

Even relatively poor people oppose high rates of redistribution because of the anticipation that they or their children may move up the income ladder. This hypothesis commonly advanced as an explanation of why most democracies do not engage in large-scale expropriation and highly progressive redistribution. But is it compatible with everyone -- especially the poor -- holding rational expectations that not everyone can simultaneously expect to end up richer than average? This paper establishes the formal basis for the POUM hypothesis. There is a range of incomes below the mean where agents oppose lasting redistributions if (and, in a sense, only if) tomorrow's expected income is increasing and concave in today's income. The laissez-faire coalition is larger, the more concave the transition function and the longer the policy horizon. We illustrate the general analysis with an example (calibrated to the U.S.) where, in every period, 3/4 of families are poorer than average, yet a 2/3 majority has expected future incomes above the mean, and therefore desires low tax rates for all future generations. We also analyze empirical mobility matrices from the PSID and find that the POUM effect is indeed a significant feature of the data.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6795.

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Date of creation: Nov 1998
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Publication status: published as Benabou, Roland and Efe A. Ok. "Social Mobility And The Demand For Redistribution: The Poum Hypothesis," Quarterly Journal of Economics, 2001, v116(2,May), 447-487.
Handle: RePEc:nbr:nberwo:6795

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  1. Peltzman, Sam, 1980. "The Growth of Government," Journal of Law and Economics, University of Chicago Press, vol. 23(2), pages 209-87, October.
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  9. Roemer, J.E., 1995. "Why the Poor Do not Expropriate the Rich in Democracies: A New Argument," Papers 95-04, California Davis - Institute of Governmental Affairs.
  10. Bénabou, Roland & Ok, Efe, 1997. "Social Mobility and the Demand for Redistribution : the POUM Hypothesis," IDEI Working Papers 78, Institut d'Économie Industrielle (IDEI), Toulouse, revised 1999.
  11. Hungerford, Thomas L, 1993. "U.S. Income Mobility in the Seventies and Eighties," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 39(4), pages 403-17, December.
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  13. Roland Benabou, 1999. "Tax and Education Policy in a Heterogeneous Agent Economy: What Levels f Redistribution Maximize Growth and Efficiency?," NBER Working Papers 7132, National Bureau of Economic Research, Inc.
  14. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
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