Date of This Version

12-22-2021

Abstract

We use a controlled laboratory experiment to study the causal impact of income de-creases within a time period on redistribution decisions at the end of that period, in an environment where we keep fixed the sum of incomes over the period. First, we inves-tigate the effect of a negative income trend (intra-personal decrease), which means a decreasing income compared to one’s recent past. Second, we investigate the effect of a negative income trend relative to the income trend of another person (inter-personal decrease). If intra-personal or inter-personal decreases create dissatisfaction for an individual, that person may become more selfish to obtain compensation. We formal-ize both effects in a multi-period model augmenting a standard model of inequality aversion. Overall, conditional on exhibiting sufficiently-strong social preferences, we find that individuals indeed behave more selfishly when they experience decreasing in-comes. While many studies examine the effect of income inequality on redistribution decisions, we delve into the history behind one’s income to isolate the effect of income changes.

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