Income inequality, perception and democracy

Economists can make a scientifically sound contribution to many questions of economic and social policy. This is not the case with the question of the "right" level of redistribution. Only the voters can answer this question. It is therefore all the more important that the debate is based on a solid foundation of facts. In many countries, the perceived inequality differs from the actual distribution statistics. For example, 44% of Austrians and 54% of Germans believe that most of their fellow citizens are in the lowest social class, although the middle class is actually the largest group of the population in both countries. In addition, income levels are perceived to be increasingly unequal, although the distribution of income after taxes and transfers in Austria and Germany has remained largely unchanged over the last ten years according to various distribution measures such as the Gini coefficient, the P90/P10 and the S80/S20 distribution measure. In Austria, income inequality has even shown a slight downward trend. There is also more redistribution than elsewhere. "The redistribution system in Austria works," says Tobias Thomas, Director of the economic research institute EcoAustria. "In an international comparison, taxes and transfers reduce inequality considerably," says Thomas. Austria's income inequality after taxes and social transfers is the fifth lowest among the 20 OECD founding countries. Only in Belgium, Denmark, Iceland and Norway is it slightly lower. Given the discrepancy between actual and perceived inequality, it is less surprising that many citizens have a poor or no understanding of income distribution. In contrast to the observable consumer behavior of neighbors, colleagues or friends, income distribution in society as a whole is not a directly observable variable. It is surprising, however, that Austrians and Germans do not underestimate or overestimate income inequality by chance, but that the majority have an overly pessimistic view of social inequality. In an analysis of over 300,000 interviews from the German Socio-Economic Panel (SOEP) between 2001 and 2015 and around 640,000 reports from the German media, the first thing that stands out is the increased interest in the topic of inequality. While reports on inequality and related topics accounted for an average of 0.45 percent of all media reports between 2001 and 2012, this figure rose to an average of 0.8 percent between 2013 and 2015. Overall, the proportion of reporting on the topic of inequality tripled between 2001 and 2015. It is noteworthy that the proportion of reporting on inequality has also risen almost continuously since 2005, although there has been no significant change in inequality either before or after state redistribution. In addition, econometric analyses show that more intensive reporting on the topic of inequality can increase the population's concerns, at least in the short term. This points to the special responsibility of the media in democracies. Due to the availability of data, the study is based on German data. However, there is much to suggest that the results can be transferred to other countries, at least qualitatively. With a similar level of economic development, a similar cultural and institutional background and a similar geographical location, this is particularly likely.