Inequality aversion and the natural rate of subjective inequality

This paper analyzes inequality aversion across countries and identifies factors which explain the empirical heterogeneity observed across these countries. We do this by hypothesizing a `natural rateʹ of subjective inequality across countries and solving for the explicit country-specific value of the inequality aversion parameter that is consistent with the hypothesized natural rate. We present evidence consistent with the existence of a natural rate of subjective inequality by verifying that countries with low (high) tolerance for inequality have low (high) inequality as measured by the Gini coefficient as well. Finally, we explore the socioeconomic factors that are consistent with observed differences in inequality aversion across these countries, finding important effects of female empowerment, public education expenditures, per capita income, economic growth, and population size.