FEEM working papers "Note di lavoro"
2021.33
Date: 23/12/2021

Decreasing Incomes Increase Selfishness


Authors:

Nickolas Gagnon, Aarhus University;  Riccardo D. Saulle, University of Padova; Henrik W. Zaunbrecher, Maastricht University

JEL n.: C91, D31, D63
Keywords: Income Inequality, Income Change, Social Preferences, Social Comparison, Income Redistribution

Abstract

We use a controlled laboratory experiment to study the causal impact of income decreases within a time period on redistribution decisions at the end of that period, in an environment where we keep fixed the sum of incomes over the period. First, we investigate the effect of a negative income trend (intra-personal decrease), which means a decreasing income compared to one’s recent past. Second, we investigate the effect of a negative income trend relative to the income trend of another person (inter-personal decrease). If intra-personal or inter-personal decreases create dissatisfaction for an individual, that person may become more selfish to obtain compensation. We formalize both effects in a multi-period model augmenting a standard model of inequality aversion. Overall, conditional on exhibiting sufficiently-strong social preferences, we find that individuals indeed behave more selfishly when they experience decreasing incomes. While many studies examine the effect of income inequality on redistribution decisions, we delve into the history behind one’s income to isolate the effect of income changes.

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Suggested citation: N. Gagnon, R. D. Saulle, H. W. Zaunbrecher (2021), 'Decreasing Incomes Increase Selfishness', Nota di Lavoro 33.2021, Milano, Italy: Fondazione Eni Enrico Mattei

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