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Economic Policies, Preferences and Well-Being

Paper Session

Sunday, Jan. 3, 2021 10:00 AM - 12:00 PM (EST)

Hosted By: American Economic Association
  • Chair: Imran Rasul, University College London & Institute for Fiscal Studies

Psychological Well-Being is Much More Strongly Related to Income than to Inequality

Johannes Haushofer
Princeton University


Economic inequality has received increasing attention from both policy-makers and researchers in recent years, largely because it is thought to be associated with negative welfare outcomes. However, concerns about inequality are often confounded with concerns about poverty. Here we use a large cross-country dataset to test the relative strength of the relationship between psychological well-being and income on the one hand, and inequality on the other hand. The relationship between well-being and inequality is small in magnitude, both in absolute terms and relative to the relationship between well-being and income. We suggest that policy-makers should focus less on inequality and more on poverty.

Understanding Tax Policy: How do People Reason?

Stefanie Stantcheva
Harvard University


I study how people understand, reason, and learn about tax policy. The goal is to uncover the mental models that people use to think about income and estate taxes. To that end, I run large-scale online surveys and experiments on representative U.S. samples to elicit not only respondents' factual knowledge about tax policy and the income or wealth distributions, but also their understanding of the mechanisms of tax policy and their reasoning about it. The detailed survey questions are designed to address the three main factors emphasized in our core tax model that can shape support for or opposition to taxes: efficiency effects, distributional implications, and fairness considerations. But they also elicit broader concerns that could influence policy views, such as misperceptions, views of government, perceived spillovers from taxes, and views on how tax revenues are or should be spent. I decompose policy views into the various underlying factors and find that support for tax policy is most strongly correlated with views on the benefits of redistribution and fairness, as well as with views of the government. Efficiency concerns play a more minor role. These correlational patterns are confirmed by the experimental approach, which shows people instructional videos that explain the workings and consequences of one of the aspects of tax policy (the ``Redistribution'' and the ``Efficiency'' treatments) or that bring the two together and focus on the trade-off (the ``Economist'' treatment). The Redistribution treatment and Economist treatments significantly increase support for more progressive taxes. I also find that there are partisan divergences not just in the final policy views, but also at every step of the reasoning about the underlying mechanisms of taxes, and most starkly on the fairness considerations.

Adversarial Selection: Partisanship, Enrollment, and Costs under the Affordable Care Act

Leonardo Bursztyn
University of Chicago


The Affordable Care Act (ACA) was one of the most significant and politically contentious expansions of the size and scope of the US Federal Government. We study the impact of partisanship on enrollment and costs in ACA health insurance exchange plans, using both aggregate and individual-level data. Examining variation within health insurance rating areas, thus holding fixed the supply side of the insurance marketplace, we find differential partisan enrollment in ACA marketplace plans that significantly depends on health status: healthy Republicans (whose outside options are better) differentially select out of the ACA exchanges. We simulate counterfactual enrollment into the ACA exchanges in the absence of partisan differences, finding that “adversarial selection" — selection into insurance by both ideology and health — substantially increases healthcare costs. Our findings indicate a significant social cost of partisanship.

Poverty Alleviation Policies, Preferences for Redistribution and Social Capital: Evidence from a Four-Year Partial Population Experiment

Imran Rasul
University College London & Institute for Fiscal Studies


Poverty alleviation policies such as large-scale asset transfers or unconditional cash transfers have both been documented as effective interventions through which to cause lasting changes in the economic lives of the world’s poorest household. Much less is known on the impacts of these policies on how households perceive levels of inequality in their community, preferences for redistribution, and social capital. We present evidence on the matter using a partial population experiment tracking 16,000 households over two and four years in 100 villages in Punjab, Pakistan. Villages are randomly assigned to receive an intervention where the poorest households are offered: (i) a large one-time transfer of assets of value $620; (ii) an equivalent valued one-off unconditional cash transfer. Our partial population experiment tracks eligible and non-eligible households in each village, where non-eligibles are drawn from the entire distribution of household wealth at baseline. Within eligible households, only a random subset are chosen to actually be offered each intervention. We provide three main findings. First, relative to controls, the self-reported life satisfaction of beneficiaries rises, while that of non-beneficiaries falls. Second, neither intervention changes long run perceptions of inequality, nor preferences over redistribution among beneficiary or non-beneficiary households. Third, each intervention positively impacts pro-market values, interpersonal trust and civic participation, as well as perceptions of crime and safety up to two-years post intervention, but these impacts fade four years post intervention. The results show that large changes in the level and distribution of economic outcomes among the poor lead to few sustained changes across households in redistributive preferences, values and beliefs, beyond those related to life satisfaction.
JEL Classifications
  • I3 - Welfare, Well-Being, and Poverty