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Social Mobility and the Demand for Redistribution: the POUM Hypothesis

  • Bénabou, Roland
  • Ok, Efe A

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 ‘Prospect of Upward Mobility’ (POUM) hypothesis is commonly advanced to explain why democracies do not engage in large-scale progressive redistributions. But is it compatible with rational expectations, given that not everyone can end up richer than average? This paper establishes the formal basis for the POUM hypothesis. There is a range of incomes below average where agents oppose lasting redistributions, provided 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 political horizon. We illustrate the general analysis with an example (calibrated to the United States) where three-quarters of families are always poorer than average, yet a two-thirds majority has expected future incomes above the mean. We also analyse mobility matrices from the Panel Study on Income Dynamics (PSID) and find significant evidence of the POUM effect.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1955.

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Date of creation: Aug 1998
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Handle: RePEc:cpr:ceprdp:1955
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  1. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 465-90, May.
  2. 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.
  3. 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.
  4. Torsten Persson & Guido Tabellini, 1991. "Is Inequality Harmful for Growth? Theory and Evidence," NBER Working Papers 3599, National Bureau of Economic Research, Inc.
  5. Roemer, J.E., 1995. "Why the Poor Do not Expropriate the Rich in Democracies: A New Argument," Department of Economics 95-04, California Davis - Department of Economics.
  6. Zimmerman, David J, 1992. "Regression toward Mediocrity in Economic Stature," American Economic Review, American Economic Association, vol. 82(3), pages 409-29, June.
  7. Benabou, R. & Ok, E.A., 1998. "Social Mobility and the Demand for Redistribution: The POUM Hypothesis," Working Papers 98-23, C.V. Starr Center for Applied Economics, New York University.
  8. Hirschman, Albert O., 1973. "The changing tolerance for income inequality in the course of economic development," World Development, Elsevier, vol. 1(12), pages 29-36, December.
  9. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, vol. 82(3), pages 393-408, June.
  10. Piketty, Thomas, 1995. "Social Mobility and Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 551-84, August.
  11. Shorrocks, A F, 1978. "The Measurement of Mobility," Econometrica, Econometric Society, vol. 46(5), pages 1013-24, September.
  12. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
  13. Marhuenda, Francisco & Ortuno-Ortin, Ignacio, 1995. "Popular support for progressive taxation," Economics Letters, Elsevier, vol. 48(3-4), pages 319-324, June.
  14. Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
  15. 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.
  16. Peltzman, Sam, 1980. "The Growth of Government," Journal of Law and Economics, University of Chicago Press, vol. 23(2), pages 209-87, October.
  17. Dardanoni Valentino, 1993. "Measuring Social Mobility," Journal of Economic Theory, Elsevier, vol. 61(2), pages 372-394, December.
  18. Durlauf, S.N. & Cooper, S.J. & Johnson, P.A., 1993. "On the Evolution of Economic Status Across Generations," Working papers 9329, Wisconsin Madison - Social Systems.
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