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Perceptions of Inequality

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Abstract

Although people's perception of (income or wealth) inequality has important e_ects on their decisions as economic agents or voters, little is known about how perceptions relate to measured inequality. We present a novel formal framework that is based on the assumption that people typically do not observe the entire income (wealth) distribution and that their guesses about the extent of inequality are based on reference groups. This framework predicts that perceptions of inequality will change along positions in the income distribution and that for a speci_c position various dimensions of inequality perception are related to each other. First, low (high) income individuals overestimate (underestimate) their own position. Second, subjective estimates of average earnings increase with the own income position. Third, high or low income people have di_erent perceptions about the \distributional shape" of society (e.g. pyramid or diamond). Fourth, the subjective perception of inequality is lower for high-income individuals. Survey data from 40 countries provide strong support for the framework

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  • Markus Knell & Helmut Stix, 2017. "Perceptions of Inequality," Working Papers 216, Oesterreichische Nationalbank (Austrian Central Bank).
    • Handle: RePEc:onb:oenbwp:216
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    Cited by:

    1. Gimpelson, V. & Chernina, E., 2020. "How we perceive our place in income distribution and how the perceptions deviate from reality," Journal of the New Economic Association, New Economic Association, vol. 46(2), pages 30-56.
    2. Michał Litwiński & Rafał Iwański & Łukasz Tomczak, 2023. "Acceptance for Income Inequality in Poland," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 166(2), pages 381-412, April.
    3. Bohmann, Sandra & Kalleitner, Fabian, 2023. "Subjective Inequity Aversion: Unfair Inequality, Subjective Well-Being, and Preferences for Redistribution," SocArXiv g8arw, Center for Open Science.
    4. Markus Knell & Helmut Stix, 2021. "Inequality, perception biases and trust," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(4), pages 801-824, December.
    5. Kerim Peren Arin & Juan A. Lacomba & Francisco Lagos & Deni Mazrekaj & Marcel Thum, 2021. "Misperceptions and Fake News during the Covid-19 Pandemic," CESifo Working Paper Series 9066, CESifo.
    6. Michael A. Nelson & Rajeev K. Goel, 2023. "Spillovers from gender equality onto economic equality: Evidence from 162 nations," Journal of International Development, John Wiley & Sons, Ltd., vol. 35(6), pages 1365-1388, August.
    7. Knight, John & Gunatilaka, Ramani, 2022. "Income inequality and happiness: Which inequalities matter in China?," China Economic Review, Elsevier, vol. 72(C).
    8. Attila Gáspár & Carmen Cervone & Federica Durante & Anne Maass & Caterina Suitner & Roberta Rosa Valtorta & Michela Vezzoli, 2023. "A Twofold Subjective Measure of Income Inequality," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 168(1), pages 25-43, August.
    9. Andreas Kuhn, 2020. "The individual (mis-)perception of wage inequality: measurement, correlates and implications," Empirical Economics, Springer, vol. 59(5), pages 2039-2069, November.
    10. Frederich Kirsten & Ilse Botha & Mduduzi Biyase & Marinda Pretorius, 2023. "Determinants of Subjective Social Status in South Africa," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 168(1), pages 1-24, August.
    11. Markus Knell & Helmut Stix, 2019. "How Peer Groups Influence Economic Perceptions," Working Papers 227, Oesterreichische Nationalbank (Austrian Central Bank).
    12. Kuhn, Andreas, 2019. "The subversive nature of inequality: Subjective inequality perceptions and attitudes to social inequality," European Journal of Political Economy, Elsevier, vol. 59(C), pages 331-344.
    13. Matthias Diermeier & Madeleine L. Fischer & Judith Niehues, 2023. "Punching up or Punching down? How Stereotyping the Rich and the Poor Impacts Redistributive Preferences in Germany," SOEPpapers on Multidisciplinary Panel Data Research 1182, DIW Berlin, The German Socio-Economic Panel (SOEP).
    14. Windsteiger, Lisa, 2022. "The redistributive consequences of segregation and misperceptions," European Economic Review, Elsevier, vol. 144(C).

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    More about this item

    Keywords

    Income distribution; perception of inequality; reference groups;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access

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