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Information, Social Mobility and the Demand for Redistribution

  • Francesco Feri

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    This paper studies how heterogeneity in income dynamics affects the POUM hypothesis (the idea that poor people do not support high level of redistribution because they hope to be rich in the future). We consider a setting where individuals evaluate their expected future income using both their current income and observable characteristics such as education, race or gender. We find that the POUM effect could increase or decrease the support for redistribution depending on the parameters of the model. Moreover we find that the POUM effect is independent of a particular shape (the concavity) of the resulting aggregate income transition function. Finally, using data from Italy, we test the model and perform a first empirical estimation of the POUM effect in Italy.

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    File URL: http://eeecon.uibk.ac.at/wopec2/repec/inn/wpaper/2008-02.pdf
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    Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2008-02.

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    Length: 30
    Date of creation: Jan 2008
    Date of revision:
    Handle: RePEc:inn:wpaper:2008-02
    Contact details of provider: Postal: Universitätsstraße 15, A - 6020 Innsbruck
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    Web page: http://www.uibk.ac.at/fakultaeten/volkswirtschaft_und_statistik/index.html.en
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    1. Javier Alvarez & Martin Browning & Mette Ejrnæs, 2001. "Modelling Income Processes with lots of heterogeneity," CAM Working Papers 2002-01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    2. Alesina, Alberto & La Ferrara, Eliana, 2005. "Preferences for redistribution in the land of opportunities," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 897-931, June.
    3. Piketty, Thomas, 1995. "Social Mobility and Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 551-84, August.
    4. 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.
    5. R. Bénabou & E. Ok, . "Mobility as Progressivity: Ranking Income Processes According to Equality of Opportunity," Princeton Economic Theory Papers 00f1, Economics Department, Princeton University.
    6. 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.
    7. 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.
    8. Alberto Alesina & Dani Rodrik, 1991. "Distributive Politics and Economic Growth," NBER Working Papers 3668, National Bureau of Economic Research, Inc.
    9. Stewart, M.B. & Swaffield, J.K., 1997. "Low Pay Dynamics and Transition Probabilities," The Warwick Economics Research Paper Series (TWERPS) 495, University of Warwick, Department of Economics.
    10. La Ferrara, Eliana & Alesina, Alberto, 2005. "Preferences for Redistribution in the Land of Opportunities," Scholarly Articles 4552533, Harvard University Department of Economics.
    11. Hirschman, Albert O & Rothschild, Michael, 1973. "The Changing Tolerance for Income Inequality in the Course of Economic Development; with a Mathematical Appendix," The Quarterly Journal of Economics, MIT Press, vol. 87(4), pages 544-66, November.
    12. Dardanoni Valentino, 1993. "Measuring Social Mobility," Journal of Economic Theory, Elsevier, vol. 61(2), pages 372-394, December.
    13. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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