Prospect equality: A force of redistribution

Abstract

Recent evidence demonstrates that the perceived, not the actual, level of income inequality influences the redistribution policy. The perception of inequality, as conceptualized in this paper, is closely related to both objective inequality and prospect equality. An axiomatic system of individual preferences is suggested and demonstrated to characterize an index of perceived inequality. Prospect equality reflects the individual ideal level of equality, and it serves as a reference point for perception. I adopt the proposed notion to study voting on redistribution. I theoretically identify the conditions under which a more equal society will demand redistribution while a less equal society blocks redistribution. These insights help explain the redistribution puzzle observed across nations.