Policy Preference and Perceived Fact on Externality: Why Do People with Higher Socio-Economic Status Sometimes Prefer Stronger Income Equalization Policy?

Literature has shown that ordinary people's preferences on public policy differ by socio-economic status. Thus the conflicts over public policy sometimes seem too hard to settle. This paper is to develop techniques to show information to ease such conflicts and to enhance more satisfying and democratically legitimate agreement. Specifically, this paper focuses on income equalization (redistribution) policy and shows the followings. First, we show a new set of questionnaire items where respondents answer the desirable amounts of tax and benefit for each household, and also the unemployment benefit, in a fictional society. The responses indicate the concrete level of desired policy, unlike the "yes/no" response to some slogan in a natural language. The items also measure the perceived external effect of the policy on economic growth. The items were included in JHPS survey conducted in Japan in 2011 and 2012. Second, analyzing the obtained data, we find no evidence that those with higher income or higher education prefer weaker equalization policy; on the contrary, interestingly we find that the better-educated tend to prefer stronger equalization policy. Third, we develop a theoretical model to explain individual's policy preference, and based on the model we statistically estimate separately (i) the effects of socio-economic statuses on normative evaluation criteria (i.e. optimal equality in the eyes of each respondent), and (ii) those on perceived fact on externality (i.e. the effect on economic growth here) of equalization policy. The results imply that the better-educated prefer stronger equalization policy, not only because of their normative evaluation criteria, but also because they perceive such a policy would enhance economic growth. Our results suggest that the conflicts over equalization policy could be more reconcilable, when preference is measured in concrete levels, and also when people share a common perception about the fact on a policy's externality.