Thursday, September 19, 2019
Wall Street Journal: One Argument for Radical Income Transparency, by Oliver Hauser (University of Exeter Business School) & Michael Norton (Harvard Business School):
How much do people actually know about the income and wealth of people who live around them? And how does what they think they know skew the way they think about government taxes and spending?
Recent research we conducted suggests that the answer to those two questions are: Not much and a lot.
An emerging body of research suggests that citizens’ preferences for spending on public goods—from social programs to health care to infrastructure—are based in part about who they believe contributes and benefits. However, we discovered that many people are unaware of the true extent of inequality where they live. And in some cases, their beliefs are dramatically different than reality.
In our research, we assessed people’s behavior toward the rich and poor under two conditions in a controlled experiment: when inequality remains invisible (or hidden), and when we reveal it. We then explored whether people might view the behavior of lower-income people differently when they were made aware of just how little income being “low income” entailed.
In other words, I might be angry that poor people contribute very little in income tax to the overall federal budget. But I might feel differently when I realize that they have so little that any contribution represents a large percentage of their small income. ...
It can be convenient to point a finger at perceived culprits: people seemingly not contributing enough, or taking advantage of social programs. But as people decide who should contribute more (in taxes) and who should receive more (in benefits), they often lack accurate information. That means that disagreements about the correct course of action can be based on flawed premises.
Second, when it comes to individual financial decisions like supporting higher taxes or donating to charity, knowledge about the true state of affairs—the wider gap in income and wealth between the rich and poor than people believe—could change people’s willingness to support more funding for social programs or increased donations to charitable causes.
A common reaction to our results is that such radical transparency of income and wealth would be at best infeasible and at worst lead to societal upheaval. Yet one country provides a glimpse into how it could work. Norway has an open database that allows citizens to see fellow citizens’ income and the taxes they paid. What is the effect? Not only is citizens’ compliance with paying their taxes high despite relatively high rates of taxation—but Norway has also not experienced revolution as a result.