Technological Change and Preferences for Redistribution

Inequality has risen dramatically in the United States since the 1980s, especially at the top of the income distribution. At the same time, top marginal income tax rates and overall tax progressivity have fallen substantially. These marked trends coincided with a period of rapid technological change, which saw the US economic engine becoming increasingly powered by knowledge-intensive sectors. Has the rise of the knowledge economy reduced demand for taxing the rich? In this paper, we argue that citizens' support for taxing the rich varies depending on how economic elites earned their millions. In particular, we claim that the perception of the new generation of super-rich tech entrepreneurs as brilliant innovators and of great benefit to the national economy has reduced demands for redistributive taxation. We test this argument by carrying out two randomized online experiments of US Americans on Prolific Academic to explore how different forms of effort provision affect support for taxing the rich. First, we randomly create groups of workers and induce experimentally controlled situations of inequality in each group based on 1) luck, 2) traditional effort, and 3) complex knowledge-intensive skills. We then observe how a group of impartial spectators redistributes money between workers. Second, we run vignette experiments asking individuals about their preferred tax rate for a top income earner while randomly varying the earner’s profession.