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Social Mobility and the Demand for Redistribution: The POUM Hypothesis

  • Roland Benabou
  • Efe A. Ok

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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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
Note: PE EFG
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  1. Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
  2. Louis Putterman & John E. Roemer & Joaquim Silvestre, 1998. "Does Egalitarianism Have a Future?," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 861-902, June.
  3. Roland Benabou & Efe A. Ok, 1998. "Social Mobility and the Demand for Redistribution: The POUM Hypothesis," NBER Working Papers 6795, National Bureau of Economic Research, Inc.
  4. 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.
  5. Gourinchas, P.O. & Parker, J.A., 1997. "Consumption Over the Life Cycle," Working papers 9722, Wisconsin Madison - Social Systems.
  6. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  7. Piketty, Thomas, 1995. "Social Mobility and Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 551-84, August.
  8. Roemer, John E., 1998. "Why the poor do not expropriate the rich: an old argument in new garb," Journal of Public Economics, Elsevier, vol. 70(3), pages 399-424, December.
  9. Dardanoni Valentino, 1993. "Measuring Social Mobility," Journal of Economic Theory, Elsevier, vol. 61(2), pages 372-394, December.
  10. Francisco Marhuenda & Ignacio Ortuño Ortín, 1995. "Popular Support For Progressive Taxation," Working Papers. Serie AD 1995-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  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. Marhuenda, Francisco & Ortuno-Ortin, Ignacio, 1995. "Popular support for progressive taxation," Economics Letters, Elsevier, vol. 48(3-4), pages 319-324, June.
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