Political Feasibility and Social Perception of Inequality

Overview & Synopsis

The actual level of income inequality and the scope of policy options influence the redistribution policy chosen by a social planner. We show how the interaction between the two attributes may lead to the formation of social perception of inequality. An axiomatic system on social preferences is suggested and demonstrated to characterize a measure of social perception of inequality. Our contention is that social perception, as conceptualized in this paper, is closely related to both the objective inequality and the prospect level of equality. The prospect equality reflects the ideal level of equality, among which are politically feasible, and serves as a reference point for perception. Our notion indicates that a social planner may not take action on inequality if the relevant policies are not politically viable. These insights may help explain the differential redistribution policies across the nations.