How visible displays of wealth make people support higher taxes – new study

In the middle of the ongoing cost of living crisis, exorbitant displays of wealth are back. Since the beginning of his term in January, US president Donald Trump has been literally bringing the gilded age back to the White House.

In April, Katy Perry spent 11 minutes in space for an undisclosed price, reportedly as much as US$28 million (£21.4 million). In June, billionaire Jeff Bezos closed part of Venice, Italy, for his lavish private wedding party.

In news, entertainment media and fashion, luxury is becoming louder. But what are the consequences? Could daily reminders of inequality lead to collective action and social change? A new study my colleagues and I conducted provides a clue.

Social scientists like to measure inequality with the Gini coefficient – a metric that describes how wealth is distributed among a group of individuals (a high coefficient means large inequality). It is well known that people have a poor understanding of the actual distribution of wealth in the society they live in, as well as their own position in that distribution.

The reason is that people tend to associate with others who are in a similar financial position. And that can make the Gini coefficient seem lower – giving the impression of more equally distributed wealth than is actually the case. In particular, the rich are more likely to underestimate inequality than others.

It’s understandable that people don’t think in Gini coefficients. In daily life, we perceive and act on inequality through social comparison.

When we decide how much to invest in sending our children to university, what to buy, where to go on holiday, or whether to ask for that pay raise, we typically compare ourselves to those we know well. And that may include neighbours, colleagues and cousins as well as influencers or celebrities.

Social comparison, more than any national statistics, helps us understand our place in society and moulds our life ambitions, ideological preferences and even political decisions.

Attitudes to wealth distribution

In our new study, we tested whether the composition of our social comparison group dictates our preferences for wealth redistribution.

We used online game experiments to simulate mini-societies where 1,440 people were randomly chosen to be born rich or poor. They each observed the wealth of a small social circle, and voted for a tax rate in a referendum, where the median vote won and the respective tax was collected and redistributed equally among all.

These were idealised, direct democracies with unrealistic 100% tax compliance and government efficiency. Still, they allowed us to create a multiverse of different worlds where voters’ social circles differed by wealth.

In some worlds, the poor were completely segregated from the rich. In other worlds, the poor were more visible to all – think, for instance, of rough sleepers or persistent news reports about families in need. In yet other worlds, the rich were more visible, for instance via celebrity gossip about the lifestyle of the wealthy, glitzy party and ballroom gala revellers spilling out on the streets.

What we found was that wealth segregation is inequality’s best friend. It keeps the status quo by keeping the poor apathetic. In contrast, observing the rich increases support for redistribution and reduces inequality.

It should be mentioned that the rich in our experiment were not at all susceptible to social information; they always wanted the same low tax rate. It was the poor who voted for higher redistribution when they saw more rich people around them. Nearly 20% of them voted for 100% taxation. This means that redistribution preferences start to polarise in the society with stark disagreements between the rich and poor.

More disturbingly, in universes with a higher selected tax rate, the poor were better off by comparison but the least happy: they reported that they were not satisfied with their own final score and that the scores were not fairly distributed overall. In other words, observing the rich may increase support for redistribution and reduce inequality, but it also increases polarisation and discontent, presenting an inherent trade-off.

Recently, there has been a surge in popular films and TV shows portraying the life and tribulations of the ultra-rich: from celebrations (Crazy Rich Asians) to dark satires (Parasite, Triangle of Sadness, Succession, The White Lotus) and even slasher horrors.

We can speculate that this is indicative of a brewing discontent with inequality, an imminent breaking point for a maturing generation that has been burdened with educational debt, robbed of home ownership and deprived of parenthood. Dissatisfaction and polarisation might be necessary for social change in a highly unequal society.

Milena Tsvetkova receives funding from the European Research Council.