What is the role of behavior for inequality in society? At Center for Economic Behavior and Inequality (CEBI) we answer this question. And now a new publication filled with stories about our research results is out.
Center leader Claus Thustrup Kreiner sets out describing the research agenda in our publication A presentation of CEBI:
In Denmark, one of the most equal countries in the world, the top 1% richest own 20% of wealth and earn close to 10% of income. High-income people can expect to live 3 years longer than their low-income peers. And more than 1 out of 5 get into financial trouble in their twenties if they are born into families in financial trouble. What are the sources of such inequalities in prosperity, health and financial future? How much inequality is there in society? Is inequality viewed as fair or unfair? How do public policies affect inequality?
These questions are important, but complex to answer. A key reason is the behavior of people, which is crucial for all aspects of inequality, but difficult to measure. As an example, consider wealth inequality. How much wealth people hold can vary because they inherit different amounts from their parents (circumstances) but also because some people save more of their income than others (behavior). Actual differences in wealth can be much larger than we think because some people hide away large fortunes in offshore accounts (behavior). Wealth inequality may persist across generations due to major differences in inheritances (circumstances), but the persistence crucially depends on consumption and labor supply responses of those receiving inheritances (behavior).
Understanding whether wealth inequality is due to differences in savings behavior, tax evasion or inheritances is important for how people view inequality and the need for policy action. Behavior is also important for evaluation of policies. A potential and highly debated policy to achieve more equality is wealth taxation. To evaluate the attractiveness of such a policy, it is important to know whether this reduces savings and capital accumulation, as this reduces future production, income and tax revenue.
CEBI looks at many dimensions of inequality and the role played by many different behavioral characteristics of people. For example, this includes differences in earnings between men and women and the role played by social norms; differences in crime propensities of people and the role played by risk willingness; differences in fairness views on inequality and the role played by beliefs about inequality.
CEBI studies the role of behavior for inequality by using unique combinations of information for large representative samples of individuals. This includes objective information obtained from administrative records such as tax returns, wealth records, population registers, bank transaction data, health records etc., as well as subjective information about people’s risk-, time- and social preferences, their beliefs about economic prospects and policy rules, and their views on inequality obtained from experiments and surveys. The data is linked together by Statistics Denmark and stored in anonymous form on CEBI-financed servers at Statistics Denmark where it can be analyzed remotely by CEBI researchers under strict security precautions. The empirical analyses are rooted in hypotheses from economic theory and include construction and estimation of mathematically formulated economic models.