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István György Tóth – Tamás Keller: Income distributions, inequality perceptions and redistributive claims in European societies WP5: Political and cultural impacts Draft of Discussion paper 5.2.3. Prepared to the Y1 meeting in Milan 3-5 February 2011

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I.Introduction II.Research questions III.Data and definitions IV.Inequalities, their perceptions and redistributive attitudes across countries (macro perspectives) V.Micro- and socio-economic correlates (multivariate analysis, individual and contextual effects) VI.Summary and conclusions Outline of the paper

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Country U is more unequal than country E. Therefore, it redistributes more (tU > tE) BUT: Empirically, this is not really the case. The evidence is rather mixed! against for mean Median (E) Median (U tE tU The proposition by Meltzer & Richard (1981): No of persons incomes Broad frame of understanding: Inequality voting redistribution

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Translation mechanisms (1): socio-economics to redistributive attitudes Micro (motivations): Perceptions Interests Attitudes Translation mechanisms (1): socio-economics to redistributive attitudes Micro (motivations): Perceptions Interests Attitudes Inequality Redistribution Translation mechanisms (from policies to modified inequalities) Tax-transfer shemes Regulation, etc… Translation mechanisms (from policies to modified inequalities) Tax-transfer shemes Regulation, etc… Translation mechanisms (2): from demand for redistribution to policies Macro (political system): Actors (parties, bureaucracies, etc) Electoral rules (majoritarian, proportional etc) Translation mechanisms (2): from demand for redistribution to policies Macro (political system): Actors (parties, bureaucracies, etc) Electoral rules (majoritarian, proportional etc) An even broader frame of understanding

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People base their opinions/judgements on an assessment of their relative positions: what if they misjudge their positions? Their motivation depends on self interest: what about alternative motivations (public values, altruism, convictions about good, caring society etc) Self interest taken at direct money terms –What about expectations (of their mobility, of their potential gains from redistribution, etc)? –What about the insurance motive? Tax rate and expenditure defined unequivocally: in reality both taxes and expenditures are more complex (also in their incidence!) Voters do not take moral standing about recipients (what if they do about the deserving and the undeserving poor)? The political system translates preferences into public spending in a straightforward way: this is not (always) the case The redistribution affects the final shape of inequalities a great deal (also: reverse causality..) A list of factors why empirics might deviate from MR predictions Theoretical framework

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Translation mechanisms (1): socio-economics to redistributive attitudes Micro (motivations): Perceptions Interests Attitudes Translation mechanisms (1): socio-economics to redistributive attitudes Micro (motivations): Perceptions Interests Attitudes Inequality Redistribution Translation mechanisms (from policies to modified inequalities) Tax-transfer shemes Regulation, etc… Translation mechanisms (from policies to modified inequalities) Tax-transfer shemes Regulation, etc… Translation mechanisms (2): from demand for redistribution to policies Macro (political system): Actors (parties, bureaucracies, etc) Electoral rules (majoritarian, proportional etc) Translation mechanisms (2): from demand for redistribution to policies Macro (political system): Actors (parties, bureaucracies, etc) Electoral rules (majoritarian, proportional etc) Theoretical framework

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Q1: What individual socio-economic characteristics drive (the formation of redistributive preferences? Q2: How do various contextual factors (most importantly: aggregate income inequalities) shape redistributive preferences? Q3: What effect the structure of inequality has on the attitudes of the middle income classes? Research questions

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Data and Definitions The empirical model used in the analysis We want to predict redistributive preference (RPI) by individual attributes (X) AND by contextual variables (Z) RPI = a + bX ij + cZ j +U 0j + E ij i = The number of individuals in the analysis (Level 1) j= The number of countries (Level 2) a= Intercept b and c = Coefficients at individual and country level, respectively E ij = Level 1 residual U 0j = Level 2 residual The effects of individual attributes on RPI were predicted with simple OLS regression (with clustered standard error) RPI = a + bX ij + E ij

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Data and Definitions Measuring redistribution preference Vertical redistribution All the individual level data come from Eurobarometer (EB: 72.1 )

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Data and Definitions Measuring redistribution preference Jobs Education Social expenditures Everyone is provided for

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Data and Definitions Measuring redistribution preference Qa14_3 (vertical redistribution)0.59 Qa25_a (providing jobs for the citizens)0.65 Qa25_b (education finance)0.53 Qa25_c (social expenditures)0.12 Qa25_d (everyone is provided for)0.74 Eigenvalue1.62 Cumulative Sums of Squared Loadings32.47% RPI is an index coming from principal component analysis Corr. with RPI

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Data and Definitions The mean value of RPI by countries

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Data and Definitions Measuring material status No objective income data was available!!! 123456missing much higher income (qa43) than 2000 Euro/months (qa42) = 6 much lower income (qa43) than 500 Euro/month (qa42) = 1 make ends meet (qa35) very easy = 6 make ends meet (qa35) with great difficulty = 1

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Data and Definitions Independent variables (X) in the regression models I. Basic model Country dummies [ reference: Germany ] II. Demography (controls only) Gender: male=1 [female], Variable d10. Age: 18-30, 31-40, [41-50], 51-60, 61-70 and 70+; Variable vd11. School: less than primary, primary, [secondary], higher, no education; Variable d8 Settlement: village, [small town], large town; Variable d25 Household size. The sum of the variables vd40a+vd40b+vd40c III. Material self interest Material status index : continuous, see the construction above Labour market position: self employed, [employed], not working; Variable c14. RPI = a + bX ij + E ij

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Data and Definitions IV. Expectations Question used: What are your expectations for the next twelve months: will the next twelve months be... when it comes to the financial situation of your household? (qa38) Future expectations better, [same], worse Three binary coded variable V. Failure attribution Question used Why in your opinion are there people who live in poverty? Here are four opinions: which is closest to yours? (qa8) Poverty attribution: [unluck], lazy, injust, part of progress Four binary coded variables. Independent variables in the regression models IV: the variable on living standard improvement social mobility. V: meaning of the question: is poverty private failure or social failure?

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Data and Definitions VI. Social context/values Poverty perception: Binary coded variable: 1, if someone perceive that poverty is very widespread in the country (qa4), the value is zero otherwise Perception of (lot of) conflicts between poor-rich, young-old, managers-workers and between ethnic groups Binary coded variables Questions from qa15_1 to qa15_4, VII. Inequality sensitivity Binary coded variable: 1, if someone totally agreed the question that income differences between people are far too large (qa14_2), and the value is zero otherwise Independent variables in the regression models

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Data and Definitions Contextual variables (Z) in the regression models Contextual variableDefinition Number of countries P95/P5 The income of the person at the 95th percentile of the income distribution divided with the income of the person at the 5th percentile 17 P95/P50 The income of the person at the 95th percentile of the income distribution divided with the income of the median income person 17 P50/P5 The income of the median income person in the income distribution divided with the income of the person at the 5th percentile 17 GiniGini coefficient 17 Countries from LIS wave VI: AT, DE, DK, ES, FI, GR, HU, IT LV, PL, SE, UK Countries from LIS wave V: BE, EE, IE, NL, SI All contextual data come from Luxembourg Income Study (LIS) We used use distance-based rather than variance based inequality measures RPI = a + bX ij + cZ j +U 0j + E ij

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Macro level analysis Inequalities and redistributive attitudes across countries Positive relationship between inequality and RPI RPI is more influenced by the lower part (below median) of the income distribution, than by the upper part (above median).

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Macro level analysis Inequalities and redistributive attitudes across countries Positive relationship between inequality and RPI Gini performs weaker than the distance based measures

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Q1: individual covariates - multivariate analysis Gender:male-0.05*** Age: 18-300.05 Age: 31-400.06* Age: 51-600.04 Age: 61-70-0.05 Age: 71+-0.03 Educ: max primary0.08*** Educ: tertiary-0.12*** Locality: village-0.04 Locality: lrg town-0.02 Hsize0.01 Lab. mark: selfemp-0.16*** Lab. mark: notwork0.1*** Lab. mark: retired-0.01 Lab. mark: student-0.01 Mat. status-0.05*** Expects: gets better0 Expects: gets worse0.12** Gets better × mat.status-0.02 Gets worser × mat.status-0.03 Why poor: person lazy-0.24*** Why poor: soc. unjust0.23*** Why poor: byproduct of econ progress -0.07** Around: large povety0.17*** Tension: rich-poor0.11*** Tension: aged0.01 Tension: man/work0.06* Tension: ethnic0.01 Ineq: too large 0.38*** Demography Mat. int. Expectations Failure Values OLS results at individual level *** p<1%; ** p<5%,; * p<10 Reference categories: Female, Age 41-50, Secondary school, Small town, Employed, Future expectation: the same, Failure attribution: unluck. Country dummies in the model

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Q1: individual covariates - multivariate analysis Findings (OLS results) People with low material resources have a significantly larger appetite for redistribution Those expecting a worsening position have a significant positive evaluation of redistribution People believing that the poor get into poverty because of laziness have a much smaller redistributive taste Those who think poverty is a consequence injustice show larger RPI People evaluating poverty a problem and/or think large tensions between social groups are more pro- redistributive

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Adj. R square change attributed to different explanatory mechanisms Robust explanatory variables 4.4% 1.9% 3.0% Q1: individual covariates - multivariate analysis

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Q2. The role of contextual factors Random intercept models, different inequality measures A.B.C. Inequality measure Inequality measure's estimated fixed effect Proportion of variance attributed to the random between-country effect Proportion of between country variance transmitted through the inequality measure P95/P50.17***5.68%26.95% P95/P500.69**6.74%13.32% P50/P50.72***4.60%40.89% Gini5.09**6.74%13.32% *** p<1%; ** p<5%,; * p<10 In countries with large inequalities, respondent are more pro-redistribution. Between-country differences in RPI can partly be attributed to inequality. Model VI. 7.78%

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Low inequalities: DK, NL, SE, FI / Middle inequalities: SI, AT, BE, LU, DE, HU, IE / Large inequalities: PL, UK, ES, GR, IT, EE Opinion differences in equal countries Opinion differences in unequal countries Is the impact of material status different in various kinds of inequality regimes? -0.05 -0.1*** -0.02** *** p<1%; ** p<5%,; * p<10 Q2. The role of contextual factors

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Standardized regression coefficients of material status and inequality Standardized regression coefficients are calculated from country level OLS regressions, using Model VI. The level of significance used in the grouping (p<0.1) Q2. The role of contextual factors The difference between rich and poor respondents RPI is the largest in countries where inequalities are in the middle range.

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1.Demand for redistribution, in addition to rational self interest, is also driven by general attitudes about the role of personal responsibility in ones own fate, of general beliefs about causes of poverty and the like. 2.The overall levels of income inequalities do explain (part of) cross country variance in demand for redistribution. 3.Larger aggregate inequalities do correspond to larger redistributive demands (on country level). 4.In countries having larger level of aggregate inequalities the general redistributive preference (of the rich, of the middle and of the poor) is higher. 5.The slope of this socio-economic gradient seems, however, steeper in countries with middle inequality levels. Summary/Conclusion

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Thank you for your attention! www.tarki.hu

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Multivariate analysis One possible explanation on the difference between rich and poor in various kinds of inequality regimes The richer the society, the less do income explains individuals preferences. *Economic Development and Happiness: Evidence from 32 Nations Standardized regression coefficients are calculated from country level OLS regressions, using Model VI.

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