Preference for redistribution and institutional trust: Comparison before and after COVID-19

Using a Japanese panel dataset from 2016 to 2024, this study finds that the COVID-19 pandemic reduced redistribution preferences among high-income individuals, a decline that was mitigated by higher trust in government but remained unaffected by generalized trust or reciprocity.

The Gist

Here is an explanation of the paper, translated into everyday language with some creative analogies.

The Big Picture: A Broken Piggy Bank and a Trusting Neighbor

Imagine society is a giant neighborhood potluck. The idea of redistribution is like everyone agreeing to bring a dish to the table so that no one goes hungry, even if it means the people who brought the most expensive steaks have to share a bit more.

Usually, the wealthy neighbors (high-income earners) are willing to share their steaks because they trust the host (the government) to make sure the food is distributed fairly and that no one is sneaking in to steal extra food for themselves.

This study looks at what happened to that willingness to share before and after the COVID-19 pandemic in Japan. The researchers wanted to know: Did the pandemic make rich people stop wanting to share? And if so, why?

The Setup: Before the Storm

Before the pandemic (2016–2018), things were surprisingly calm. In fact, the study found that wealthy people were actually more willing to share than poorer people.

• The Analogy: Think of it like a group of friends playing a board game. The players with the most money were happy to put extra cash into the "community pot" because they trusted the game rules and the referee. They believed the system was fair.

The Event: The Pandemic Hits

When COVID-19 hit, the government had to act fast. They threw money at the problem, creating huge subsidies to help businesses and families survive.

• The Problem: Just like in any emergency where cash is flying around, some people tried to cheat. There were cases of businesses faking their losses to get extra government money.
• The Reaction: The news started reporting on these "cheaters." The public saw headlines about fraud.

The Discovery: The Rich Get Cold Feet

The researchers tracked the same group of people over several years (a "panel study") to see how their minds changed. Here is what they found:

1. The Wealthy Changed Their Minds
After the pandemic, the wealthy people stopped wanting to share as much as they used to.

• The Analogy: Imagine the wealthy neighbors looking at the community pot and thinking, "Wait a minute. If I put my steak in, and the referee is letting people steal it, why should I keep paying for this potluck?"
• The Result: Their willingness to support redistribution dropped significantly.

2. It Was All About Trust, Not Greed
You might think rich people just got greedy. But the study says no. It wasn't about their bank accounts; it was about their trust in the referee (the government).

• The Key Finding: If a wealthy person still trusted the government to stop the fraud, they still wanted to share. But if they lost trust in the government's ability to manage the money, they stopped wanting to share.
• The Metaphor: It's like a parent giving an allowance. If the child trusts the parent to manage the family budget fairly, they are happy to contribute. If the child sees the parent losing money to a scammer, they stop contributing.

3. Other "Good" Traits Didn't Help
The researchers also looked at other nice traits, like "general trust" (trusting strangers) or "reciprocity" (the idea of "I scratch your back, you scratch mine").

• The Surprise: These nice traits didn't save the day. Even if a rich person was generally a nice, trusting person, if they didn't trust the government specifically, they still stopped wanting to share. The specific trust in the institution mattered more than general kindness.

The Takeaway: The Vicious Cycle

The paper warns of a dangerous cycle:

1. A disaster happens (like a pandemic).
2. The government tries to help with money (redistribution).
3. Some people cheat (fraud), and the news spreads.
4. The wealthy lose trust in the government.
5. The wealthy stop supporting redistribution.
6. Without support, inequality grows again, and the system becomes weaker.

The Lesson for Policymakers

The authors suggest that when governments hand out emergency money, they have to be super strict about catching cheaters.

• The Final Metaphor: If you want the wealthy neighbors to keep filling the community pot, you have to make sure the "referee" is watching the door so no one steals. If the referee looks asleep, the wealthy neighbors will walk away, and the potluck will fail.

In short: The pandemic didn't just make people poor or rich; it broke the trust between the wealthy and the government. Without that trust, the rich are no longer willing to help the poor, even if they used to be willing before.

Technical Summary

Here is a detailed technical summary of the paper "Preference for redistribution and institutional trust: Comparison before and after COVID-19" by Eiji Yamamura and Fumio Ohtake.

1. Problem Statement and Research Context

The paper investigates the long-term impact of the COVID-19 pandemic on preferences for income redistribution, specifically focusing on how these preferences changed between high-income and low-income groups in Japan. While existing literature offers conflicting views on whether disasters increase or decrease inequality, this study addresses a critical gap: the persistence of these effects after the acute phase of the crisis.

The authors posit that while governments implement redistribution policies to mitigate disaster impacts, these policies can trigger moral hazards (e.g., fraudulent claims for subsidies). Such fraud undermines institutional trust (trust in government), which is a prerequisite for high-income earners to support redistribution. The study seeks to determine if the pandemic eroded this trust, leading to a reversal in redistribution preferences among the wealthy, and whether this effect persisted into the post-pandemic period (2021–2024).

2. Methodology

Data Source

• Dataset: An individual-level panel dataset constructed from internet surveys conducted by the Nikkei Research Company (NRC).
• Timeframe: 2016–2024.
  • Pre-COVID: 2016, 2017, 2018.
  • Post-COVID: 2021, 2023, 2024.
• Sample:
  • Balanced Panel: Approximately 10,000 observations (individuals who participated in all surveys).
  • Unbalanced Panel: Approximately 27,000 observations (used for robustness checks).
  • Representativeness: Stratified by age, gender, and region to match the Japanese Census population structure.

Variables

• Dependent Variable: Redistribution Preference. Measured on a 5-point Likert scale (1 = Strongly Disagree to 5 = Strongly Agree) regarding the statement: "The government should reduce the gap between the rich and poor."
• Key Independent Variables:
  • COVID-19 Dummy: Indicates the post-pandemic period.
  • High Income: A binary dummy variable (1 if household income > median, 0 otherwise).
  • Institutional Trust: Trust in government (5-point scale).
  • Control Variables: Generalized trust (trust in people), Reciprocity (willingness to return favors), age, marital status, job status, education, and region.

Econometric Model

The authors employed a Fixed-Effects (FE) model to control for time-invariant individual characteristics ($u_i$).

• Baseline Model (Testing Hypothesis 1):
  $$Redistribution_{it} = \alpha_0 + \alpha_1 (COVID_t \times HighIncome_{it}) + \alpha_2 COVID_t + \alpha_3 HighIncome_{it} + X'_{it}\beta + u_i + e_{it}$$

  • The coefficient $\alpha_1$ captures the differential change in redistribution preference for high-income earners post-COVID compared to low-income earners.

• Extended Model (Testing Hypothesis 2):
  The baseline model was augmented with triple interaction terms to test if institutional trust moderates the decline in preference:
  $$Redistribution_{it} = \beta_1 (COVID_t \times HighIncome_{it} \times GovTrust_{it}) + \dots + Z'_{it}\gamma + u_i + e_{it}$$

  • This model tests whether high-income earners with high government trust maintained their support for redistribution despite the pandemic.

3. Key Contributions

1. Longitudinal Analysis: Unlike previous studies focusing on short-term pandemic effects, this paper tracks the same individuals over an 8-year period (2016–2024), capturing the persistent effects of the crisis after it subsided.
2. Income Stratification: It identifies a structural reversal in redistribution preferences based on income levels, a nuance often missed in aggregate analyses.
3. Mechanism Identification: The study isolates institutional trust as the specific mechanism driving the decline in redistribution support among the wealthy, distinguishing it from general social capital (generalized trust and reciprocity).
4. Contextual Specificity: It links the decline in trust directly to the Japanese context of widespread fraudulent subsidy claims (e.g., Employment Adjustment Subsidy fraud), providing a concrete behavioral explanation for the erosion of trust.

4. Empirical Results

Hypothesis 1: The Reversal of Preferences

• Finding: High-income earners became significantly less likely to prefer redistribution after COVID-19 compared to before.
• Evidence: The interaction term ($COVID \times HighIncome$) is negative and statistically significant at the 1% level.
• Magnitude: High-income individuals are approximately 0.30 points lower on the 5-point redistribution scale post-COVID compared to the pre-COVID baseline relative to low-income earners.
• Reversal: Pre-COVID, high-income earners were slightly more supportive of redistribution than low-income earners. Post-COVID, this relationship flipped; high-income earners are now less supportive.

Hypothesis 2: The Role of Institutional Trust

• Finding: The decline in redistribution preference among high-income earners is mitigated if they maintain high trust in the government.
• Evidence: The triple interaction term ($COVID \times HighIncome \times GovTrust$) is positive and significant for high levels of trust (scores 4 and 5).
• Interpretation: High-income earners who continued to trust the government did not significantly reduce their support for redistribution. Conversely, those with lower trust drove the aggregate decline.
• Specificity: This effect is unique to institutional trust. Neither generalized trust (trust in people) nor reciprocity significantly influenced the decline in redistribution preferences.

Descriptive Trends

• Trust Erosion: Overall trust in the government declined post-COVID, particularly among high-income groups.
• Fraud Awareness: Search data for "fraudulent receipt" spiked in 2020, correlating with the decline in trust and redistribution support.

5. Significance and Policy Implications

• The Vicious Cycle of Trust: The study highlights a potential vicious cycle: Disasters $\rightarrow$ Redistribution Policies $\rightarrow$ Moral Hazard (Fraud) $\rightarrow$ Erosion of Institutional Trust $\rightarrow$ Withdrawal of Support for Redistribution (especially by the wealthy) $\rightarrow$ Increased Inequality.
• Policy Recommendation: To sustain redistribution policies in the long run, governments must prioritize preventing fraud and ensuring the fairness of subsidy distribution. If high-income earners perceive the system as unfair or prone to abuse, their willingness to fund redistribution (via taxes) collapses.
• Theoretical Insight: The findings suggest that redistribution preferences are not solely driven by self-interest (income level) but are heavily dependent on perceptions of fairness and institutional integrity. When trust is high, self-interest can be overridden by a sense of public morality; when trust is low, self-interest dominates.

Conclusion

The paper concludes that the COVID-19 pandemic in Japan caused a lasting shift in redistribution preferences, driven by a loss of institutional trust among high-income earners due to perceived fraud in relief programs. While low-income groups remained supportive, the withdrawal of support from the wealthy threatens the long-term viability of income redistribution policies. The authors emphasize that maintaining institutional trust through strict anti-fraud measures is critical for preventing a resurgence of income inequality.