Progressivity, Information, and Preferences

Abstract: A critical insight emerging from the political behavior literature is that voters substantially vary in how much they know about politics. Specifically, recent work in political economy have documented citizens misperceive inequality, and these misperceptions matter significantly for preferences over redistribution. Empirical evidence shows that the extent to which individuals misperceive inequality varies considerably across nations. We argue and show formally that progressivity of the tax and transfer policies explains these variation. When progressivity is high, individuals are better informed about their position in the income distribution. Conversely, when progressivity is low, individuals are more likely to misperceive their position. We test these predictions across nations within a sample of advanced industrial democracies. Our findings indicate that the progressivity of the tax and transfer system is a significant determinant of the information gap regarding perceptions of inequality.