Exposure to Inequality may Cause Under-Provision of Public Goods: Experimental Evidence

Abstract

Economic inequality is rising globally and due to developments in information technologies and globalization, nowadays individuals are more exposed to this inequality than ever. Recent studies show that exposure to inequality may shape economic decisions. In this article, we test whether contributions in the public goods game are sensitive to information about inequality of personal benefits between groups. Our results show that learning the return levels of another group with higher (lower) benefits decreases (increases) the contributions with a stronger reaction by low benefit groups. Our further tests show that this effect diminishes when the benefit difference between the groups gets smaller. These results suggest that exposure to inequality might have detrimental impact on public goods provision, yet this effect gets negligible as economic inequality reduces.