I Perceive Therefore I Demand: The Formation of Inequality Perceptions and Demand for Redistribution

• Authors: Ada Ferrer-i-Carbonell.
• Behavioral and Experimental Economics
• Review of Income and Wealth

This paper shows that perceptions of inequality matter for demand for redistribution and investigates how individuals form their perceptions. Using data from the ISSP, we present new evidence on the significant changes of perceptions of inequality for more than 20 countries during the last three decades and how these are not in synch with changes in objective inequality. Rather than indicating misperceptions, these discrepancies reflect a broader view of inequality that for most individuals encompasses poverty, insecurity in the labor markets, availability of public goods in addition to objective income disparities. We then show that these perceptions have much stronger correlation with demand for redistribution than objective inequality, or any of the mentioned contextual variables that mold perceptions. Ideology and self-interest also contribute to demand for redistribution. Much more than those on the left, right-leaning individuals adjust their demand for redistribution in line with their inequality perceptions.