The Effect of Aspirations on Inequality: Evidence from the German Reunification using Bayesian Growth Incidence Curves
Edwin Fourrier-Nicolaï  1, *@  , Michel Lubrano  2, 3@  
1 : Aix-Marseille University, Aix-Marseille School of Economics
Aix-Marseille University, CNRS, EHESS, Centrale Marseille
Aix-Marseille School of Economics, 5 boulevard Bourdet, 13001 Marseille -  France
2 : Groupement de Recherche en Économie Quantitative d'Aix-Marseille  (GREQAM)
Université de la Méditerranée - Aix-Marseille II, Université Paul Cézanne - Aix-Marseille III, École des Hautes Études en Sciences Sociales [EHESS], CNRS : UMR7316, Ecole des Hautes Etudes en Sciences Sociales (EHESS)
Centre de la Charité, 2 rue de la Charité, 13236 Marseille cedex 02 -  France
3 : Aix-Marseille School of Economics  (AMSE)
Ecole Centrale Marseille (ECM), Ecole des Hautes Etudes en Sciences Sociales (EHESS), Centre national de la recherche scientifique (CNRS)
GREQAM, Centre de la Charité, 2 rue de la Charité, 13236 Marseille Cedex 02 -  France
* : Corresponding author

A long-standing literature has investigated the formation of aspirations and how they shape human behaviours but a recent interest has been devoted on the interplay between aspirations and inequality. Because aspirations are socially determined, household investment decisions tend to be reproduced according to the social context which fosters inequality to persist. We empirically examine the role of aspirations on inequality using a natural experiment. We exploit an exogenous variation of social aspirations determined by the exposure to Western German TV broadcasts in the GDR before the reunification. We measure the treatment effect on income inequality by comparing inequality changes between the treatment and the control regions after reunification using Bayesian inference. We use an heteroskedastic parametric model for income with a treatment effect and sample selection. We derive analytical formulae for the growth incidence curve of Ravallion and Chen (2003) and poverty growth curve of Son (2004) for the log-normal distribution. Based on those curves, we provide Bayesian inference and a set of tests related to stochastic dominance criteria. We find evidences that aspirations - through exposure to Western German broadcasts - have significantly affected inequality. We find that this effect was detrimental in terms of inequality and poverty. However, we cannot conclude about the persistence of the effect after 1995.


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