Who wants income inequality?: An analysis of public choice under income comparison

Abstract

This study investigates when individuals from advantaged and disadvantaged groups are in favor of reducing income inequality. Using a model that considers both an individual's absolute income and relative income, I examine the conditions under which income equalization is supported by some members in the advantaged group and, more interestingly, opposed by part of the disadvantaged group. In equilibrium, the valuation towards relative income, the initial endowment the difference between the two groups and the amount of income transfer upon equalization have opposite effects on different groups' likelihood of favoring equalization. To this end, I conduct a comparative statics analysis, and the results suggest that in order to incentivize more individuals to support inter-group income transfer, a policymaker's optimal strategy substantially depends on how much the society values relative income.