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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

  • Johannes Schwarze
  • Marco Härpfer
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    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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    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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    1. 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.
    2. 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, vol. 49(3), pages 359-372, 09.
    3. Alesina, Alberto F & Di Tella, Rafael & MacCulloch, Robert, 2001. "Inequality and Happiness: Are Europeans and Americans Different?," CEPR Discussion Papers 2877, C.E.P.R. Discussion Papers.
    4. Daniel S. Hamermesh, 1999. "The Changing Distribution of Job Satisfaction," NBER Working Papers 7332, National Bureau of Economic Research, Inc.
    5. Corneo, Giacomo & Grüner, Hans Peter, 2001. "Individual Preferences for Political Redistribution," CEPR Discussion Papers 2694, C.E.P.R. Discussion Papers.
    6. DiTella, Rafael & MacCulloch, Robert & Oswald, Andrew J., 2001. "Preferences over inflation and unemployment: Evidence from surveys of happiness," ZEI Working Papers B 03-2001, ZEI - Center for European Integration Studies, University of Bonn.
    7. 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.
    8. Hans Peter Gruner & Giacomo Corneo, 2000. "Social Limits to Redistribution," American Economic Review, American Economic Association, vol. 90(5), pages 1491-1507, December.
    9. Thurow, Lester C, 1971. "The Income Distribution as a Pure Public Good," The Quarterly Journal of Economics, MIT Press, vol. 85(2), pages 327-36, May.
    10. 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, vol. 34(2), pages 115-42, June.
    11. Hans-Werner Sinn, 1994. "A Theory of the Welfare State," NBER Working Papers 4856, National Bureau of Economic Research, Inc.
    12. Bruno S. Frey & Alois Stutzer, 2001. "What Can Economists Learn from Happiness Research?," CESifo Working Paper Series 503, CESifo Group Munich.
    13. Fong, Christina, 2001. "Social preferences, self-interest, and the demand for redistribution," Journal of Public Economics, Elsevier, vol. 82(2), pages 225-246, November.
    14. 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.
    15. Blackorby, Charles & Donaldson, David, 1978. "Measures of relative equality and their meaning in terms of social welfare," Journal of Economic Theory, Elsevier, vol. 18(1), pages 59-80, June.
    16. Bruno S. Frey & Alois Stutzer, 2000. "Maximising Happiness?," German Economic Review, Verein für Socialpolitik, vol. 1(2), pages 145-167, 05.
    17. Hochman, Harold M & Rodgers, James D, 1969. "Pareto Optimal Redistribution," American Economic Review, American Economic Association, vol. 59(4), pages 542-57, Part I Se.
    18. Morawetz, David, 1977. "Income Distribution and Self-Rated Happiness: Some Empirical Evidence," Economic Journal, Royal Economic Society, vol. 87(347), pages 511-22, September.
    19. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
    20. Alberto Alesina & Edward Glaeser & Bruce Sacerdote, 2001. "Why Doesn't the US Have a European-Style Welfare System?," NBER Working Papers 8524, National Bureau of Economic Research, Inc.
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