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The Role of Social Identity on Preferences for Redistribution

Periodic Reporting for period 1 - SOCIENTITY_PR (The Role of Social Identity on Preferences for Redistribution)

Reporting period: 2021-09-01 to 2023-08-31

The overall goal of the action is to understand and uncover the role of social identity on the formation of preferences for redistribution. To do this, the objectives of the proposed research are twofold:
•O1: Investigate the effect of social identity on preferences for redistribution.
•O2: Investigate the existence of multiple regimes and parameter heterogeneity on preferences for redistribution.
Preferences for redistribution reflect the demand of the redistributive policies, describing the willingness of individuals to tax the rich more heavily and transfer resources to the disadvantaged. One of the major mechanisms of preferences for redistribution is social identity, which is a type of social interactions theory. The key idea is that conditional on a group membership, the preferences for redistribution depend not only on private incentives, but also on social incentives that make the preferences interdependent so that individuals exhibit similar or dissimilar behavior. The primary reason for focusing on social identity is that it provides a deeper understanding of the demand for redistribution with important policy implications on the welfare state, social mobility, and equality of opportunity. Furthermore, social identity suggests alternative types of redistribution such as associational redistribution, that targets group memberships as objects of redistribution (e.g. affirmative actions). This type of alternative form of redistribution is particularly important when policy makers aim at equality of opportunity.
The literature has mainly focused on the effect of an individual’s characteristics on her preferences for redistribution. A large range of models has proposed different mechanisms that generate demand for redistribution (e.g. mobility, culture, religion, ideology). There is remarkably little work on the role of social factors in explaining the individual heterogeneity of preferences for redistribution. Social identity is one class of theories that suggests the role of social interactions in the preferences for redistribution. The proposed research aims at taking the current state of the art one step further using social interactions to explain preferences for redistribution and to employ novel econometric techniques.
During the last 24 months of the fellowship all deliverables and milestones linked with the 5 working packages (WP) of the initial proposal have been met. In particular:
•WP1: In regards to project management, I took all necessary actions to manage the time schedule of the action and achieve both the objectives of the project. To achieve this, I held biweekly meetings with both supervisors.
•WP2: To achieve the training and transfer of knowledge part of the fellowship, I participated in various trainings, workshops, seminars and presented my work in various occasions. Additionally, I had various meetings and discussions with esteemed UCLA faculty members, and other renowned scholars visiting the UCLA.
•WP3: Deliverable 3.1: Literature and Data Report (for Objective 1), and Deliverable 3.2: Results and Conclusion Report, have been completed and approved by both supervisors. Furthermore, I constructed the socioeconomic matrix (Milestone 3.1) which shows the preferences of redistribution of any given individual to be related to the preferences and characteristics of the other individuals in that individual’s reference group. Finally, for the econometric estimation (Milestone 3.2) I employed a type of linear social interaction model that allows the preferences for redistribution of any given individual to be related to the preferences and characteristics of the members of the individual's socioeconomic network during early adulthood. Both deliverables and milestones are described in detail in the Periodic Technical Report.
•WP4: Deliverable 3.1: Literature and Data Report (for Objective 2), and the first draft of Deliverable 4.2: Results and Conclusions report have been completed and approved by both supervisors. Furthermore, for the econometric estimation (Milestone 4.1) I utilized a threshold regression, extending the linear model by sorting the data into groups of observations each of which obeys the same linear model of preferences for redistribution according to threshold variables as proposed by various theories. Finally, for the identification of threshold variables (Milestone 4.2) the identification strategy leans on two distinct excluded instrumental variables. First, I employ the lagged value of each threshold variable, and second, I draw upon insights from the empirical cross-country growth literature, which has presented a plethora of instrumental variables related to fundamental determinants of development.
•WP5: In regards to the dissemination and the exploitation of the action, I published 2 peer-reviewed papers in academic journals, drafted 2 additional working papers, and presented my work in various occasions.
The proposed research aims at taking the current state of the art one step further by building on the existing literature to model social identity to explain preferences for redistribution. Moreover, the proposed research will employ novel econometric techniques and individual survey type data. In particular, I am focusing on social interaction models that allow both endogenous and contextual effects. Additionally, I aim at gaining deeper insights about the composition of the socioeconomic matrix using innovative techniques. Finally, I am investigating the presence of nonlinearities and multiple equilibria using novel econometric methodologies such as threshold regression models accounting for the endogeneity of the threshold variable.
The main findings reveal a substantial role of social identity in the formation of preferences for redistribution. In particular, I find that exposure to the redistributive preferences of other individuals with a similar socioeconomic background increases demand for redistribution in the future. Furthermore, I uncover evidence of threshold effects in preferences for redistribution using threshold regressions. These threshold effects imply both asymmetric social and individual effects that emerge due to social preferences and contextual characteristics related to inequality, marriage, father's education, Protestantism, and macroeconomic shocks, as well as in a set of country characteristics.
Primarily, the impact of the outgoing phase has considerably developed my research knowledge and skills, through the high quality research conducted during this phase and the collaboration and exchange of ideas with both supervisors and other faculty members at UCLA. The impact of the work carried out during the outgoing phase can be exploited by the broader academic community. Additionally, the results can impact policy makers in the areas of social exclusion, social integration, and discrimination. An additional impact of the outgoing phase on my research career, was the network that has been built during these 24 months. This has enriched both my communication, and collaboration skills, and opened the door for future collaborations, novel ideas and high quality research. Finally, working outside Europe has enriched our knowledge at the University of Cyprus by introducing novel data, fresh ideas and theories, and pioneering econometric methods.
Box plots from Objective 1
Heat map from Objective 2