'Last Place Aversion': Why Even the Poor Oppose Redistributist Tax Policy

The Economist, Don’t Look Down:  The Poor Like Taxing the Rich Less Than You Would Think:

[There are] longstanding differences between Americans’ attitudes to taxation and those in much of the rest of the rich world. America is far less inclined than many of its rich-world peers to use taxation and redistribution to reduce inequality. ...

The differences in attitude towards redistributive taxes are not just between countries but also within them, and economists have several explanations as to why. When it comes to differences between countries, social cohesion plays a major role. Broadly speaking, countries that are more ethnically or racially homogeneous are more comfortable with the state seeking to mitigate inequality by transferring some resources from richer to poorer people through the fiscal system [Group Loyalty and the taste for Redistribution]. This may explain why Swedes complain less about high taxes than the inhabitants of a country of immigrants such as America. But it also suggests that even societies with a tradition of high taxes (such as those in Scandinavia) might find that their citizens would become less willing to finance generous welfare programmes were immigrants to make up a greater share of their populations. Immigration can also subtly alter the overall attitude towards such matters in another way. A 2008 study by economists at Harvard [Culture, Context and the Taste for Redistribution] found evidence that immigrants’ attitudes towards taxation and redistribution were rooted in the places they had left.

Social divisions also play a role in determining who within a society prefers greater redistributive taxation. In America blacks—who are more likely to benefit from welfare programmes than richer whites—are much more favourably disposed towards redistribution through the fiscal system than white people are. ...

Paradoxically, as the share of the population that receives benefits in a given area rises, support for welfare in the area falls. A new NBER paper finds evidence for an even more intriguing and provocative hypothesis [Last Place Aversion: Evidence and Redistributive Implications]. Its authors note that those near but not at the bottom of the income distribution are often deeply ambivalent about greater redistribution.

Economists have usually explained poor people’s counter-intuitive disdain for something that might make them better off by invoking income mobility. Joe the Plumber might not be making enough to be affected by proposed hikes in tax rates on those making more than $250,000 a year, they argue, but he hopes some day to be one of them. This theory explains some cross-country differences, but it would also predict increased support for redistribution as income inequality widens. Yet the opposite has happened in America, Britain and other rich countries where inequality has risen over the past 30 years.

Instead of opposing redistribution because people expect to make it to the top of the economic ladder, the authors of the new paper argue that people don’t like to be at the bottom. One paradoxical consequence of this “last-place aversion” is that some poor people may be vociferously opposed to the kinds of policies that would actually raise their own income a bit but that might also push those who are poorer than them into comparable or higher positions. ... Poverty may be miserable. But being able to feel a bit better-off than someone else makes it a bit more bearable.