IN THE 1939 classic Western “Stagecoach”, a villainous banker with a bag of embezzled cash in his lap frets about the state of the American economy: “Our national debt is something shocking!” he complains. That year American public debt was just over two-fifths of GDP. This year, the IMF reckons, it will be just over 98%, rising to over 102% in 2012. Were he still around, the unscrupulous banker might have struggled to express his outrage, although he might have found solace in the fact that America's August 2nd deal to increase the debt ceiling envisages $2.4 trillion in spending cuts but no tax hikes. This strikes many, both outside the United States and within it, as odd. A Democratic congressman called the debt deal a “sugar-coated Satan sandwich”.

It does, however, loosely reflect longstanding differences between Americans' attitudes to taxation and those in much of the rest of the rich world. America is far less inclined than many of its rich-world peers to use taxation and redistribution to reduce inequality. The OECD, a think-tank, reckons that taxation eats up a little less than 30% of the average American's total compensation, compared with nearly 50% in Germany and France. America's top federal income-tax rate of 35% is lower than in many other advanced economies (although most Americans also pay state taxes). Britain's top tax rate is 50%. Swedes and Danes acquiesce to tax rates that would outrage many Americans: Sweden's top rate is 57% and Denmark's is 55%. Unsurprisingly, the American state is also less generous to the poor. Unemployment benefits in the United States replace a smaller share of income, and run out more quickly, than in most European countries.

The differences in attitude towards redistributive taxes are not just between countries but also within them, and economists have several explanations as to why. When it comes to differences between countries, social cohesion plays a major role. Broadly speaking, countries that are more ethnically or racially homogeneous are more comfortable with the state seeking to mitigate inequality by transferring some resources from richer to poorer people through the fiscal system. This may explain why Swedes complain less about high taxes than the inhabitants of a country of immigrants such as America. But it also suggests that even societies with a tradition of high taxes (such as those in Scandinavia) might find that their citizens would become less willing to finance generous welfare programmes were immigrants to make up a greater share of their populations. Immigration can also subtly alter the overall attitude towards such matters in another way. A 2008 study by economists at Harvard found evidence that immigrants' attitudes towards taxation and redistribution were rooted in the places they had left.

Social divisions also play a role in determining who within a society prefers greater redistributive taxation. In America blacks—who are more likely to benefit from welfare programmes than richer whites—are much more favourably disposed towards redistribution through the fiscal system than white people are. A 2001 study looked at over 20 years of data from America's General Social Survey and found that whereas 47% of blacks thought welfare spending was too low, only 16% of whites did. Only a quarter of blacks thought it was too high, compared with 55% of whites. In general (though not always), those who identify with a group that benefits from redistribution seem to want more of it.

Paradoxically, as the share of the population that receives benefits in a given area rises, support for welfare in the area falls. A new NBER paper finds evidence for an even more intriguing and provocative hypothesis. Its authors note that those near but not at the bottom of the income distribution are often deeply ambivalent about greater redistribution.

Economists have usually explained poor people's counter-intuitive disdain for something that might make them better off by invoking income mobility. Joe the Plumber might not be making enough to be affected by proposed hikes in tax rates on those making more than $250,000 a year, they argue, but he hopes some day to be one of them. This theory explains some cross-country differences, but it would also predict increased support for redistribution as income inequality widens. Yet the opposite has happened in America, Britain and other rich countries where inequality has risen over the past 30 years.

Never mind the top, avoid the bottom

Instead of opposing redistribution because people expect to make it to the top of the economic ladder, the authors of the new paper argue that people don't like to be at the bottom. One paradoxical consequence of this “last-place aversion” is that some poor people may be vociferously opposed to the kinds of policies that would actually raise their own income a bit but that might also push those who are poorer than them into comparable or higher positions. The authors ran a series of experiments where students were randomly allotted sums of money, separated by $1, and informed about the “income distribution” that resulted. They were then given another $2, which they could give either to the person directly above or below them in the distribution.

In keeping with the notion of “last-place aversion”, the people who were a spot away from the bottom were the most likely to give the money to the person above them: rewarding the “rich” but ensuring that someone remained poorer than themselves. Those not at risk of becoming the poorest did not seem to mind falling a notch in the distribution of income nearly as much. This idea is backed up by survey data from America collected by Pew, a polling company: those who earned just a bit more than the minimum wage were the most resistant to increasing it.

Poverty may be miserable. But being able to feel a bit better-off than someone else makes it a bit more bearable.

Sources

"Group Loyalty and the taste for Redistribution", by Erzo F.P. Luttmer

Last Place Aversion: Evidence and Redistributive Implications", by Ilyana Kuziemko, Ryan Buell, Taly Reich and Michael I. Norton. NBER working paper 17234, July 2011

"Culture, Context and the Taste for Redistribution", by Erzo F.P. Luttmer and Monica Singhal. NBER working paper 14268, August 2008