Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212271 
Year of Publication: 
2013
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 31/2013
Publisher: 
Bank of Finland, Helsinki
Abstract: 
In cross-sectional studies, countries with greater income inequality typically exhibit less support for government-led redistribution and greater acceptance of wage inequality (e.g., United States versus Western Europe). If individual nations evolve along this pattern, a vicious cycle could form with reduced social concern amplifying primal increases in inequality due to forces like skill-biased technical change. Exploring movements around these long-term levels, however, this study finds mixed evidence regarding the vicious cycle hypothesis. On one hand, larger compensation differentials are accepted as inequality grows. This growth in differentials is of a smaller magnitude than the actual increase in inequality, but it is nonetheless positive and substantial in size. Weighing against this, growth in inequality is met with greater support for government-led redistribution to the poor. These patterns suggest that short-run inequality shocks can be reinforced in the labor market but do not result in weaker political preferences for redistribution.
Subjects: 
Inequality
Social Preferences
Social Norms
Redistribution
Welfare
Class Warfare
JEL: 
D31
D33
D61
D63
D64
D72
H23
H53
I38
J31
R11
Persistent Identifier of the first edition: 
ISBN: 
978-952-6699-52-3
Document Type: 
Working Paper

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