Redistribution, Social Segregation and Voting Information

This paper examines the puzzle of why economic inequality has not resulted in political countermeasures to mitigate it, and proposes that the reason is due to misperceptions of economic inequality caused by segregation in social networks. We model taxation and voting behavior with an exponential income distribution and a Random Geometric Graph-type model to represent homophily, which leads to people perceiving their own income rank and income to be close to the middle. We find that people base their beliefs about mean income on a weighted sum of the true mean and their local perception in the network, and that higher homophily causes lower implemented tax rates, which explains why redistribution preferences appear decoupled from actual inequality. We suggest two measures to counteract this:educating people about the actual income distribution and promoting diversity to reduce homophily.