Income inequality and social preferences for redistribution and compensation differentials

Countries with greater inequality typically exhibit less support for redistribution and greater acceptance of inequality (e.g., U.S. versus Western Europe). If individual nations evolve along this pattern, a vicious cycle could form with reduced social concern amplifying primal increases in inequality. Exploring movements around these long-term levels, however, this study finds mixed evidence regarding the vicious cycle hypothesis. Larger compensation differentials are accepted as inequality grows. Weighing against this, growth in inequality is met with greater support for government-led redistribution. Inequality shocks can be reinforced in the labor market but do not result in weaker political preferences for redistribution.