Kerr, William2014-07-182014-07-18Kerr, William R. "Income Inequality and Social Preferences for Redistribution and Compensation Differentials." Journal of Monetary Economics (forthcoming).0304-3932http://nrs.harvard.edu/urn-3:HUL.InstRepos:12534910In cross-sectional studies, countries with greater income inequality typically exhibit less support for government-led redistribution and greater acceptance of wage inequality (e.g., United States versus Western Europe). If individual nations evolve along this pattern, a vicious cycle could form with reduced social concern amplifying primal increases in inequality due to forces like skill-biased technical change. Exploring movements around these long-term levels, however, this study finds mixed evidence regarding the vicious cycle hypothesis. On one hand, larger compensation differentials are accepted as inequality grows. This growth in differentials is of a smaller magnitude than the actual increase in inequality, but it is nonetheless positive and substantial in size. Weighing against this, growth in inequality is met with greater support for government-led redistribution to the poor. These patterns suggest that short-run inequality shocks can be reinforced in the labor market but do not result in weaker political preferences for redistribution.en-USequity and inequalityincomegovernment and politicsJournal Article2014-07-1810.3386/w17701