Social Mobility and the Demand for Redistribution: The POUM Hypothesis / Roland Benabou, Efe A. Ok.

Format:

Book

Author/Creator:

Benabou, Roland.

Contributor:

National Bureau of Economic Research.

Ok, Efe A.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6795.

NBER working paper series no. w6795

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Social Mobility and the Demand for Redistribution

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1998.

Summary:

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.

Notes:

Print version record

November 1998.