# 1 Introduction

This paper investigates the link between inequality and demand for redistribution by looking at how individuals form their perceptions of inequality and how these determine demand for redistribution. Most of the literature focused on explaining demand for redistribution – or, more broadly, on political support for redistributive institutions such as the welfare state – identifies inequality as a key determinant. And, more importantly, it assumes that this inequality –usually represented by an inequality index calculated from a distribution of income of a household survey, which one could call _objective_ inequality – is common knowledge for all individuals, both in terms of what it exactly represents and its levels (or changes). This literature, in other words, ignores the issue of how subjective perceptions of inequality are formed. This is clearly a problem if there is a gap between subjective perceptions of inequality, which influence actions and choices of individuals, and objective inequality, which is used to explain those same actions by the literature. Some authors dismiss this issue, in part because of a widespread wariness towards subjective data,<sup>1</sup> and tend to characterize subjective assessment of inequality as individuals’ _mis_ perceptions rather than as something we need to understand. Mismeasurement, misconception, or simple mistakes are likely a part of the reason behind the gap between objective and subjective inequality but, in this paper, we show that they are not the whole story.

By presenting a simple model of the formation of perceptions we show its importance for demand for redistribution as well as the fact that perceptions are shaped not only by the objectively defined inequality measure (Gini) or by misperceptions, but they are also systematically correlated with other context (aggregate) and individual variables. We show that individuals’ perceptions on inequality encompass a broader definition of inequality that correlates, for example, with poverty or unemployment, as well as with fairness or social mobility, own situation and ideology. In other words, perceptions depend on the objective situation of both, the country and the individual, but they are also influenced by the fairness of the process through which objective inequality is generated and by individuals’ own views of what constitute a fair society, i.e., their ideology. We argue that perceptions, a key determinant of demand for redistribution, are formed in a much more complex way than typically assumed. In concrete, we find that inequality perceptions depend on the context: uncertainties in the labor market (unemployment), actual inequality, poverty, and government expenditures on education. Inequality perceptions however depend not

> 1 There are some actual issues that justify economists’ reluctance: in most surveys, people do not have incentives of revealing their genuine beliefs, and they are confronted by social pressure to say the socially acceptable thing. In his paper where he proposes to use subjective data, Manski (2004) notes that “[...] economists have been deeply skeptical of subjective statements; they often assert that one should believe only what people do, not what they say. As a result, the profession for many years enforced something of a prohibition on the collection of subjective data” (p. 1337).

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