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Group Loyalty and the Taste for Redistribution

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  • Erzo F.P. Luttmer

Abstract

Interpersonal preferences - preferences that depend on the characteristics of others - are typically hard to infer from observable individual behavior. As an alternative approach, this paper uses survey data to investigate interpersonal preferences. The General Social Survey contains self-reported preferences for welfare spending, which I validate with voting behavior on cuts in welfare benefits. Using this preference measure, I show that preferences for income redistribution are not only determined by financial self-interest but also by interpersonal preferences. These interpersonal preferences are characterized by a negative exposure effect - individuals decrease their support for welfare if there are more welfare recipients in their area - and racial group loyalty - individuals increase their support for welfare spending if a larger fraction of welfare recipients in their area belongs to their racial group. My results hold when areas are defined as states, metropolitan areas or census tracts and are robust to various specification checks. Direct evidence that individuals' preferences for redistribution are partly determined by the effects of redistribution on the utility or lifestyle of others in their community is valuable for the development of more accurate theoretical models and for the design of redistributive policies. The results also help to explain why welfare benefit levels are relatively low in racially heterogeneous states.

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  • Erzo F.P. Luttmer, 1999. "Group Loyalty and the Taste for Redistribution," JCPR Working Papers 61, Northwestern University/University of Chicago Joint Center for Poverty Research.
    • Handle: RePEc:wop:jopovw:61
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