Growth and Inequality: Experimental Evidence on How Misperceptions Affect Redistribution

Abstract

Many policies affect future inequality, from taxation to investments in education. Therefore, citizens’ support for these policies may depend on their beliefs about how inequality will evolve over time. In three large-scale experiments, I examine whether individuals are able to predict how exponential economic growth influences inequality, and I examine how beliefs about inequality influence people’s preferences for redistribution. I find that most people underestimate how much inequality increases in the presence of growth, but this does not matter for policy support, as beliefs about inequality do not affect preferences for redistribution. Rather, what matters is whether people know if redistribution will come at a personal cost to themselves.