Income Mobility, Luck vs Effort Beliefs, and the Demand for Redistribution: Reality, Perceptions, and Dynamics Manja Gärtner (U Linköping) Johanna Mollerstrom (Humboldt U and DIW Berlin) David Seim (Stockholm U) January 2018

Gärtner, Mollerstrom, Seim Introduction Inequality and redistribution are at the top of the agenda – both academically and in the public debate Large differences in the extent to which individual people and counties want to redistribute resources in society Despite extensive research, we are still far from complete understanding of how demand for redistribution shape and change at the individual level Seminal theory work (Romer, 1975; Meltzer & Richard, 1981) suggest that relative affluence is key Empirical work confirms this, but also shows that this is not the whole story (e.g. Fong, 2001; Alesina and Giuiliano, 2010) January 2018 Gärtner, Mollerstrom, Seim

Gärtner, Mollerstrom, Seim Our paper Similar to Piketty (1995), Alesina & Angeletos (2005), and Benabou & Tirole (2006), we are concerned with the links between: Income mobility, Beliefs about the relative role of luck and effort in generating economic success, and Demand for redistribution We ask: Does the implicit assumption from these papers, that people can correctly assess their own mobility, hold? And if not, is actual or perceived mobility the better predictor of demand for redistribution, and of beliefs about the role of luck and effort? Is there evidence that the beliefs about luck and effort are strategic/dynamic in the way that the theories predict? Do people strategically teach their children that luck/effort matters in a way that deviates from what they themselves actually believe? (C.f. Benabou and Tirole, 2006) Is income mobility an input in the process of forming beliefs on the role of luck/effort? (C.f. Piketty, 1995) January 2018 Gärtner, Mollerstrom, Seim

Gärtner, Mollerstrom, Seim Our Data Survey 1 Conducted in Sweden, sent to representative sample of 4500 people (36% response rate) Beliefs about relative income, political party preferences, is it luck or effort that matters most for economic success? , etc Administrative data Main data source is LISA, the longitudinal integration database for health insurance and labor market studies Age, gender, marital status, income, wealth, transfers, education, cognitive ability, etc Survey 2 Sent to responders of survey 1 3 months later (80% response rate) Treatment group got information about true relative income position Demand for redistribution, beliefs about luck/effort, etc reassessed Sample exclusions (non-complete surveys, too old/too young to analyze mobility, etc) N=940 for the mobility analysis in this paper We use 10 y mobility throughout January 2018 Gärtner, Mollerstrom, Seim

Our previous work with these data Karadja, Mollerstrom and Seim (2017): “Richer (and Holier) than Thou? The Effect of Relative Income Improvements on Demand for Redistribution” The vast majority of Swedes under-estimate their relative income, i.e. believe that they are poorer than others than they actually are When treatment group is informed about their true relative income (i.e. that they are richer than they thought) they want less redistribution (Gärtner, Mollerstrom and Seim (2017): ”Individual Risk Preferences and the Demand for Redistribution”) (Mollerstrom and Seim (2014): “Cognitive Ability and the Demand for Redistribution”) We use 10 y mobility throughout January 2018 Gärtner, Mollerstrom, Seim

Roadmap for our findings Actual income mobility Perceptions of income mobility Luck vs effort dynamics Intergenerational dynamics Intrapersonal dynamics January 2018 Gärtner, Mollerstrom, Seim

Actual Income Mobility Administrative data on all sources of income We define actual income mobility as change in percentile between “now” and 10 years ago (Also have measure of 5y mobility – results are consistent) January 2018 Gärtner, Mollerstrom, Seim

Actual Income Mobility January 2018 Gärtner, Mollerstrom, Seim

Actual Income Mobility January 2018 Gärtner, Mollerstrom, Seim

Perceptions of Income Mobility In Survey 1 we assess: Perception of current relative income percentile (and decile) Perception of relative income decile 10 (and 5) years ago We define perceived income mobility as change in decile between “now” and 10 years ago 5y perceived mobility as robustness check January 2018 Gärtner, Mollerstrom, Seim

Perceptions of Income Mobility January 2018 Gärtner, Mollerstrom, Seim

Perceptions of Income Mobility January 2018 Gärtner, Mollerstrom, Seim

Perceptions of Income Mobility Perceived Percentile and Mobility Actual Percentile and Mobility January 2018 Gärtner, Mollerstrom, Seim

Luck vs Effort and Demand for Redistribution January 2018 Gärtner, Mollerstrom, Seim

Mobility and Luck vs Effort Beliefs Perceived Percentile and Mobility Actual Percentile and Mobility January 2018 Gärtner, Mollerstrom, Seim

Intergenerational Dynamics in Luck/Effort Beliefs In addition to assessing beliefs about whether luck and effort is what determines individual economic success in life we also ask what people teach their children Those without children are asked to answer what they think those with children do Results are robust to only considering those with own children We also ask how they think the average Swede would answer the luck vs effort question January 2018 Gärtner, Mollerstrom, Seim

Gärtner, Mollerstrom, Seim Intergenerational Dynamics in Luck/Effort Beliefs January 2018 Gärtner, Mollerstrom, Seim

Intergenerational Dynamics in Luck/Effort Beliefs January 2018 Gärtner, Mollerstrom, Seim

Intrapersonal Dynamics in Luck/Effort Beliefs Vast majority of our sample believe that they are poorer, relative to others, than what they actually are (Karadja, Mollerstrom, Seim, 2017) Experiment ended up mostly being about informing people about them being richer, relative to others, than they previously thought How does this information affect beliefs about the role of luck/effort? January 2018 Gärtner, Mollerstrom, Seim

Intrapersonal Dynamics in Luck/Effort Beliefs Full sample, (treatment effect p=0.067) January 2018 Gärtner, Mollerstrom, Seim

Intrapersonal Dynamics in Luck/Effort Beliefs Luck-Believers Only (treatment effect p=0.998) Effort-Believers Only (treatment effect p=0.015) January 2018 Gärtner, Mollerstrom, Seim

Gärtner, Mollerstrom, Seim Summing up Actual mobility experience is related to demand for redistribution but individuals are not very good at estimating it Perceptions of mobility has a stronger correlation with redistributive preferences, and with beliefs about the role of luck and effort The beliefs about the role of luck and effort seem dynamic/strategic – both between generations and within an individual People say that they teach their children that effort is more information than what they themselves actually believe Exogenous positive mobility in the form of receiving truthful information that one is richer than one thought leads people to believe more in effort January 2018 Gärtner, Mollerstrom, Seim