1. 1 IV) Income Inequality and the Easterlin paradox One of the missing variables? (in the estimation of the relationship between Income and Happiness) Di Tella and MacCulloch (2008). Sacks, Stevenson and Wolfers (2010)

2. 2 Stevenson and Wolfers (2008)

3. 3 III. The aversion to inequality and the demand for income redistribution Two notions of inequality : - the distribution of national income in general - the income gap between my reference group and myself In both cases: the link between inequality and well-being can be direct or informational.

4. 4 Beliefs and preferences Beliefs on the factors of social success, on the process of income generation Preferences for these elements – for the process Preferences for the outcomes

5. 5 Fairness preferences Distributive justice : judged by final outcomes Needs principles Equity principle (individual inputs/outputs) oExogenous inputs: luck, birth oEndogenous inputs: effort, choice Procedural fairness Voice for everybody Neutrality of decision-makers Transparent and consistent procedures

6. 6 Beliefs Beliefs about the cause of income inequality About the return to effort Self-interest and self-serving biases Personal characteristics and the sensitivity to inequality Women Age Education Country’s history Religiosity …

7. 7 Alesina, Glaeser and Sacerdote (2001)

8. 8 Attitudes towards income inequality Alesina A., di Tella R. and MacCulloch R. (2004), Journal of Public Economics, 88 (9-10), 2009-2042. Alesina A., and la Ferrara E. (2001), Journal of Public Economics, May 2005, 89: 897-931 Alesina A., Glaeser E. and Sacerdote B. (2001), Brookings Papers on Economic Activity, Fall, 187-278. Corneo G. and H-P. Grüner (2000), American Economic Review, 90, 1491-1507. Fong C. (2001), Journal of Public Economics, 82, 225-246. Difference Europe-USA

9. 9 1. A pure preference for income equality? National / cultural differences?

10. Morawetz D. “Income Distribution and Self- Rated Happiness: Some Empirical Evidence” The Economic Journal 1977, 87, 511-522

11. 11

12. 12 Alesina, di Tella and Mac Culloch “Inequality and Happiness: are Europeans and Americans Different? » Journal of Public Economics, 2004. Data : - US General Social Survey, 1972-1994, 24 333 individuals, 23 years. - Europe : Euro-barometer, 1975-1992, 273 386 individuals, 18 years. - Self-rated happiness. - Gini Coefficients (Deiniger et Squire, 1996).

13. 13

14. 14

15. 15

16. 16

17. 17

18. 18

19. 19

20. 20

21. 21 2. Beliefs and aversion to inequality POUM, Fairness, reciprocity, responsibility, etc.

22. 22 Beliefs * Self-Interest Benabou R. and Ok E. (2001), “Social Mobility and the Demand for Redistribution: The POUM Hypothesis”, Quarterly Journal of Economics, 116 (2), 447-487.

23. 23 Alesina, Glaeser and Sacerdote (2001) « Why Doesn’t the US Have a European-Style Welfare System ? », Brookings Papers on Economic Activity, Fall, 187-278. Beliefs about factors of success in life

24. 24

25. 25 Alesina and Angeletos, “Fairness and Redistribution: US versus Europe”, American Economic Review, 2005, 95: 913-35.

26. 26

27. 27

28. 28 Alesina and la Ferrara (2005), “Preferences for Redistribution in the Land of Opportunities” Journal of Public Economics, 89: 897-931.

29. 29

30. 30

31. 31

32. 32 Beliefs * Preferences Christina Fong, « Social Preferences, Self-Interest, and the Demand for Redistribution » Journal of Public Economics 2001, 82, 225-246 Fong, Bowles and Gintis, “ The Behavioural Motives for Income Redistribution”. Australian Economic Review. 2005, 38(3), pp. 285-197.

33. 33 Contributive justice

34. 34 Contributive justice

35. 35 Pure contributive justice

36. 36 Alesina, Glaeser and Sacerdote « Why Doesn’t the US Have a European-Style Welfare System ? » Brookings Papers on Economic Activity, 2001, Fall, 187-278. Ethnic altruism Preferences (* Beliefs?)

37. 37

38. 38

39. 39

40. 40

41. 41 Erzo Luttmer « Group Loyalty and the Taste for Redistribution » Journal of Political Economy 2001, 109(3)

42. 42 Racial Heterogeneity inside the US and AFDC State Transfers

43. 43 Changing preferences for income equality Alberto Alesina and Nicola Fuchs- Schündeln, « Good bye Lenin (or not?): The Effect of Communism on People's Preferences », American Economic Review, 2007, 97: 1507-1528. Feedback process of the economic regime on individual preferences exploit the "experiment" of German separation and reunification to establish exogeneity of the economic system East Germans are more in favor of redistribution and state intervention than West Germans, even after controlling for economic incentives. This effect is especially strong for older cohorts, who lived under Communism for a longer time period. East Germans' preferences converge towards those of West Germans. It will take one to two generations for preferences to converge completely.

44. 44 Alesina and Fuchs-Schuelden (2005)

45. 45 Alesina and Fuchs-Schuelden (2005)

46. 46 Alesina and Fuchs-Schuelden (2005)

47. 47

48. 48 Conclusion on welfare and income inequality Pure aversion to inequality Preferences over the process of income formation Contributive justice (insurance, solidarity) Altruism? Interaction between beliefs and preferences Might influence relationship between GDP and Happiness.