Inequality in life expectancy: perception and consequences for redistribution policy

• Applicant: Professor Dr. Sebastian Köhne
• Subject Area: Economic Policy, Applied Economics ; Economic Theory
• Term: since 2020
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 454799018

Inequality in income and wealth is closely linked with inequality in non-economic domains—in particular regarding health and life expectancy: well-off individuals tend to live healthier and longer lives. To what extent are individuals aware of these socioeconomic differences in life expectancy? How should economic policy react? Should redistribution policy become more generous towards the poor who are additionally deprived in terms of life expectancy? Or, to the contrary, should policy become less redistributive in order to provide extra funds to high-income households who have to finance a longer lifespan? What are the welfare consequences when policy designers ignore or misperceive the socioeconomic differences in life expectancy? Although these questions are highly relevant for society, science and politics, they have not been studied in the existing literature.We address these research questions with a combination of empirical and theoretical methods. In the empirical stage, we carry out a representative survey to document the perceived socioeconomic differences in life expectancy in the German population and compare these perceptions to actual data. Further, we empirically test whether inequality in life expectancy strengthens the support for redistribution. By conducting a survey experiment and generating experimental variation in perceptions of the socioeconomic distribution of life expectancy, we explore the causal link between inequality perceptions in life expectancy and preferences for various policy instruments. With the help of our empirical findings, we study optimal policy design in the theoretical stage of the project. We introduce socioeconomic heterogeneity in life expectancy into the canonical Mirrleesian taxation model and characterize the optimal redistribution policy both theoretically and quantitatively. In particular, we account for the actual socioeconomic differences in life expectancy, the perceived socioeconomic differences in life expectancy, and the impact of the perceived differences on the social preference for redistribution. To the best of our knowledge, our project is the first to a) document the perceived socioeconomic differences in life expectancy in a representative survey, b) connect policy preferences to the perceived socioeconomic differences in life expectancy, c) analyse optimal redistribution policy in the context of socioeconomic differences in life expectancy.

• DFG Programme: Research Grants
• Co-Investigators: Dr. Lasse Jessen; Professor Dr. Jens Ruhose