Inequality Aversion for Climate Policy

A sizable body of literature on climate economics uses the notion of inequality aversion. This is the idea that a society will give up some personal benefits or economic efficiency to achieve greater equality. We review and synthesize published estimates of inequality aversion to guide this literature. We review both normative studies (which treat ethical values as axioms from which good behavior is deduced) and empirical studies (which try to infer a society’s beliefs about inequality from its public policy decisions). In the normative case, a variety of ethical principles underlie the recommendations for inequality aversion. The empirical studies use various methods to present estimates based on some form of “revealed ethics,” in which a society’s actions or individuals’ responses unveil preferences to reduce inequality. Examples include progressive income tax schedules or the level of foreign aid. In these empirical studies, we find strong support for the view that people are averse to inequality, but only to a limited degree. Studies that look at domestic policies support values between one and four (where zero indicates no aversion toward inequality). By contrast, studies that look at foreign aid find lower values, ranging from above zero to one.