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PolicyResearchWorkingPaper10966

PerceptionsofEconomicMobilityandSupportforEducationReforms

AlexandruCojocaru

MichaelLokshin

IvánTorre

WORLDBANKGROUP

EuropeandCentralAsiaRegion&PovertyandEquityGlobalPracticeNovember2024

PolicyResearchWorkingPaper10966

Abstract

Thispaperinvestigatestherelationshipbetweentheexpec-tationsofeconomicmobilityandsupportfortax-financededucationreformsusingdatafromtheLifeinTransitionSurvey,whichcovers39countriesinEurope,CentralAsia,andtheMiddleEastandNorthAfrica.Theanalysisdemonstratesthatindividualswhoexpectthemselvesortheirchildrentobeupwardlymobilearemorelikelyto

supporttax-financededucationreforms.Thiscorrelationisrobusttodifferentformulationsofmobilityexpecta-tionsandpersistsoveradecade,encompassingbothstableandpost-crisiseconomicenvironments.Therelationshipispartiallymediatedbybeliefsaboutthefairnessofeco-nomicopportunitiesinsocietyandindividuals’readinesstoembracerisks.

ThispaperisaproductoftheOfficeoftheChiefEconomist,EuropeandCentralAsiaRegionandthePovertyandEquityGlobalPractice.ItispartofalargereffortbytheWorldBanktoprovideopenaccesstoitsresearchandmakeacontributiontodevelopmentpolicydiscussionsaroundtheworld.PolicyResearchWorkingPapersarealsopostedontheWebathttp:///prwp.Theauthorsmaybecontactedatacojocaru@,mlokshin@,anditorre@.

ThePolicyResearchWorkingPaperSeriesdisseminatesthefindingsofworkinprogresstoencouragetheexchangeofideasaboutdevelopmentissues.Anobjectiveoftheseriesistogetthefindingsoutquickly,evenifthepresentationsarelessthanfullypolished.Thepaperscarrythenamesoftheauthorsandshouldbecitedaccordingly.Thefindings,interpretations,andconclusionsexpressedinthispaperareentirelythoseoftheauthors.TheydonotnecessarilyrepresenttheviewsoftheInternationalBankforReconstructionandDevelopment/WorldBankanditsaffiliatedorganizations,orthoseoftheExecutiveDirectorsoftheWorldBankorthegovernmentstheyrepresent.

ProducedbytheResearchSupportTeam

PerceptionsofEconomicMobilityandSupportforEducationReforms

AlexandruCojocaru,MichaelLokshin,andIván

Torre1

JEL:D3,J62,O1,O15,P2

Keywords:Economicmobility,equalityofopportunity,supportforeducationreform,EuropeandCentralAsia,MiddleEastandNorthAfrica

1TheauthorsareattheWorldBank.Thispaper’sfindings,interpretations,andconclusionsareentirelythoseoftheauthorsanddonotnecessarilyrepresenttheviewsoftheWorldBank,itsExecutiveDirectors,orthecountriestheyrepresent.MiguelPurroyprovidedexcellentassistanceincollecting,processing,andanalyzingdataforthispaper.Sendcorrespondencetoacojocaru@.

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1.Introduction

Structuralreformscanraiseincomes,butthecostsofreformsmightfalldisproportionatelyonsomepopulationgroups,increasinginequalityandfuelingargumentsopposingchange.Theriskoflossesforlargesegmentsofsocietycouldbeapowerfulshapingforceofeconomicandsocialpolicies.Identifyingwhowilllikelyloseoutfromreformsandmanagingpeople’sperceptionsabouttheirfuturewelfareiscrucialforconsolidatingpoliticalsupportforcostlymeasuresandmovingcountriestohighergrowthtrajectories.Itmightbeparticularlyimportanttounderstandthefactorsthatshapesupportforstructuralreformsforthemiddle-incomecountriesinEurope,CentralAsia,andelsewherethatarefacingchallengesinacceleratingeconomicgrowthandraisingtheirpopulations’standardsofliving.

Thispaperinvestigateswhethersupportforeducationreformsisaffectedbyexpectationsaboutfutureeconomicmobility.Thefocusonthesubsetofstructuralreformsrelatedtoeducation

stemsfromtheevidencethatinvestmentsinhumancapitalplayacrucialroleindrivingeconomicgrowth

(HanushekandWoessmann2008)

andthateducationreformsareapowerfulpolicychannelthroughwhichcountriescanimprovetheinclusivenessofgrowthbylevelingtheplayingfieldandenhancingtheupwardeconomicmobilityofdisadvantagedgroups

(IMF2019)

.

Theanalysisisbasedondataon39countriesinEurope,CentralAsia,andtheMiddleEastandNorthAfricafromthe2010,2016,and2023roundsoftheLifeinTransitionSurvey

(EBRD2023)

.Thissampleofcountriesisanalyticallyinterestingbecause,despiteprogressmadeoverthelast

severaldecades,thesecountrieslagthehigh-incomecountriesineducationalachievement

(WorldBank2018)

.Reformsaimedatimprovingthequalityofeducationarealsomorecostlyandpoliticallychallengingthaneffortstoexpandaccesstoeducation,whichhelpedcountriesmovefromlow-incometomiddle-incomestatus

(Aiyarandothers2013)

.Profoundeducationreformsthattakeyearstoachievelastingeffectsrequireastrong,broad-based,durablecoalition

atalllevelsofsociety.

Thepaperfindsthatindividualswhoexpectthemselvesortheirchildrentobeupwardlymobilearemorelikelytosupporttax-financededucationreformsthanindividualswhodonot.Thisrelationshipisrobusttovariousformulationsofmobilityexpectationsandpersistsacrossseveral

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surveyroundsspanningbothstableandpost-crisiseconomicenvironments.Thisrelationshipispartiallymediatedbybeliefsaboutthefairnessofeconomicopportunitiesinsocietyandindividuals’willingnesstotakerisks.Weusetheinstrumentalvariableapproachtomitigatethepossibilitythatourestimatesarebiasedbythepresenceofunobservedindividualtraitscorrelatedwithexpectationsofmobilityandindividualwillingnesstosupportreforms.

Therestofthepaperisstructuredasfollows.Section2reviewstheliterature.Section3presentsourestimationframework.Section4describesthedataandpresentssomedescriptiveresults.Section5presentsthemainresultsofourmultivariateanalysis.Section6presentstheresultsofoursensitivityanalysis.Section7examineschangesinsupportforeducationreformovertime.Section8summarizesthepaper’smainfindings.

2.Literaturereview

Economictheorysuggeststhatself-interestdrivespolicypreferencesandvotingbehavior.The

poorwouldbemorelikelytosupporthigherlevelsofredistribution,forinstance,whereastherichwouldbemorelikelytoopposethem

(MeltzerandRichard1981)

.Havingexperiencedanadverseeconomicshock,suchasjoblossorinsecureemployment,heightensaperson’ssenseofvulnerabilityandleadstostrongerpreferencesformoreexpansivesafetynets

(Margalit2019;

Heinemannetal.2009;

Boeri,Boersch-Supan,andTabellini2002)

.Ontheotherhand,lotterywindfallsareassociatedwithsupportformoreconservativeandlessegalitarianpoliticalviews

(PowdhaveeandOswald2014)

.Intransitioneconomies,self-reportedupwardmobilitywas

reportedtoberelatedtobroaderacceptanceoftheoutcomesofprivatization

(Denisovaetal.

2012)

andgreatersupportforthemarketeconomy

(Cancho,Davalos,andSanchez2015)

.

Earlierstudiesfoundthatotherfactors—includingthedegreeofunderstandingofwhatthe

reformsentail,politicalaffinities,andnormativebeliefs,suchasattitudestowardfairness—alsoshapepreferences

.AlesinaandGlaeser(2004)

arguethatthedifferenceinthesizeofthewelfarestateintheUnitedStatesandEuropepartlyreflectsdifferencesinbeliefsaboutthefairness

underlyingpovertyandsocialmobility,aswellasethnicfractionalization,whichinfluencespreferencesforredistribution

.LuttmerandSinghal(2011)

demonstratethatimmigrants’politicalpreferencesareinfluencedbybeliefsaboutredistributionintheircountryoforigin.

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Futureexpectationscanalsoinformeconomicself-interest.BenabouandOk(2001)showthatexpectationsofsocioeconomicmobilitycanaffectpreferencesforredistribution.Individualswithbelow-averageincomeswhowouldbenefitfromredistributivepoliciesfinancedbyhighertaxesmayopposesuchpoliciesiftheyexpecttobeupwardlymobile.Thisprediction,knownastheProspectsofUpwardMobilityhypothesis,hasbeenborneoutbythedatainexperimental

settings(ChecchiandFilippin2004;

AgranovandPalfrey2020)

aswellasinobservationaldata(AlesinaandLaFerrara2005;AlesinaandFuchs-Schuendeln2005;

Cojocaru2014;

Ruedaand

Stegmueller2019)

.

Theliteratureonpreferencesforredistributionpointstotheimportanceofself-interest,culturalfactors,andsocialmobility,bothpastandfuture(CorneoandGruner2002;

AlesinaandGiuliano

2009;

Alesina,Stancheva,andTeso2018;Cavaille2023;seealso

MengelandWeidenholzer2022

foradetailedsurveyofthisliterature).Lessisknownabouttherolethesefactorsplayinshapingpreferencesforpolicychoicesunrelatedtoredistribution.Thispaperaimstocontributetoclosingthisknowledgegap.Severalearlierstudiesconsiderthedriversofsupportformarketreformsatthebeginningofthepost-Soviettransition

(Duch1993;

Denisovaetal.2021;

RovelliandZaiceva

2013)

orinLatinAmerica

(KaufmanandZuckermann1998)

.

Denisovaetal.(2012)

findthat

economichardshipsduringthepost-Soviettransition—suchastheexperienceofdownwardmobility,thelackofhumancapitalsuitableforamarketeconomy,andthelackofprivateassets—significantlyincreasedthedesireforrevisingtheresultsofearlierprivatization.

SeveralearlierstudieshaveexaminedtheindividualdeterminantsofpreferencesforinvestmentsineducationforasmallsubsetofEuropeancountries

(BusemeyerandGarritzmann2017;

Garritzmann,Busemeyer,andNeimanns2018)

.

WieseandEriksen(2024)

investigatelinkagesbetweenexpectationsofmobilityandwillingnesstopayforimprovementsinpubliceducationandhealthcareusingdatafromthe2016roundoftheLiTS,framingitasatestofthePOUMhypothesiswithrespecttoindirectratherthandirectredistribution,whichwasthefocusonthemajorityofearlierstudies.However,willingnesstopayadditionaltaxesforinvestmentsineducationorhealthcaremightnotnecessarilybedrivenbyredistributionmotives,asrespondentscanviewsuchinvestmentsasbenefitingthemselvesandtheirfamilies;thussupport

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forsuchinvestmentscanbeentirelyconsistentwithself-interest.Thelatterisindeedtheargumentthisstudyproposestoinvestigateempirically.

3.Theoreticalframeworkandempiricalstrategy

Theeffectsofstructuralreformstaketime—possiblyaslongasageneration—tomaterialize.Unlikelow-incomecountries,whereeducationpoliciesfocusmainlyonexpandingaccesstoprimaryand/orsecondaryeducation,middle-incomecountries,whichoftenalreadyhaveuniversalaccesstobasiceducation,requireharder-to-implement,longer-terminvestments,suchasupgradingthevocationalandtertiaryeducationthatiscriticalforresearchanddevelopment

(DonerandSchneider2016).

Indecidingwhethertosupporttax-financedinvestmentsineducation,individualscomparethediscountedvalueoffuturebenefitsfromthereforms(forthemselvesormembersoftheirfamilies)tothelossesincurrentconsumptionbecauseofhighertaxes.Perceptionsaboutsocioeconomicmobilityareanimportantfactorinthisdecision.Intergenerationalmobilityin

educationandincomeischaracterizedbyasignificantdegreeofpersistence.Childrenofbetter-educatedparentsand/orparentswithhighersocioeconomicstatusaremorelikelythanotherchildrentohavehighlevelsofeducationandincomeasadults

(vanderWeideetal.2024)

.Oneofthekeyfactorsdrivingthisintergenerationalpersistence,inbotheducationandincomes,isparentalprivateinvestmentsintheeducationoftheirchildren

(RestucciaandUrrutia2004)

.Individualswhoexpecttoimprovetheirsocioeconomicstatus(ormaintainhighstatus)would

wanttotransferthatstatustotheirchildren,partlybyinvestingineducationalattainmentforthem.

Assumetheeducationaloutcomesareafunctionoftwocomplimentaryinputs–publicly-providedschoolingandprivateparentalinvestment.Then,individualswhoanticipatetheireconomicsituationtoimproveinthefuturewouldexpecthigherreturnsfrombetterpubliceducationbecausetheycancomplementitwithhigherprivateinvestment.Incontrast,peoplewhobelievetheirsituationwilldeterioratemayseelessvalueforgoingcurrentconsumptiontofinanceimprovementsineducation,becausetheymaynotbeabletoaffordtheprivateeducationalinvestmentsnecessarytosecurehighereducationalattainmentfortheirchildren.

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Morerisk-averseindividualswilldiscountthefuturemoreheavily,reducingtheirsupportforreforms(whichoutcomesareuncertain).Beliefinmeritocracy,ontheotherhand,willbeexpectedtoincreasewillingnesstofinanceinvestmentsinpoliciesthatpromotemeritocraticadvancement.

Theseconsiderationsmotivateourempiricalmodel.Thecorehypothesiswetestisthatsupportforeducationreformsfinancedbyhighertaxesdependsonindividualexpectationsoffuturemobility.Thisrelationshipcouldbeexpressedasthefollowingmodel:

prob(wi>0)=F(βMic+xcY+vc),(1)

wherewiisthelatentwillingnesstopayadditionaltaxesforinvestmentsineducationby

individualifromcountryc(withtheobservedwillingnesstosupporttax-financedreformswic=

1ifwi>0and0otherwise);F(.)isastandardnormalcumulativedistributionfunctionof(—εic);

Micisavariablereflectingtheexpectationoffuturemobility;Xisavectorofindividual-levelcontrols,includingage,gender,education,areaofresidence,currentincome,householdsize,andpresenceofchildreninthehousehold;vcarecountryfixedeffects;andεic~N(0,1)istheidiosyncraticerrorterm.

Giventhetradeoffbetweencurrentconsumptionandthediscountedvalueoffuturebenefitsfromimprovededucation,thecontrolvariablesinourempiricalspecificationareincludedtotheextentthattheyaffecttheindividual’scost-benefitdecisions.Weexpectindividualswithhighereducationorincometosupportinvestmentsinhumancapital.Wealthierhouseholdswouldalsohaveagreatercapacitytosupporttax-financededucationreforms.Youngerpeoplemayhaveadifferentdiscountrateforfuturebenefitsthanolderones.

Wecontrolforthepresenceofchildreninahouseholdtocapturedifferencesinbenefitsfromimprovededucationbetweenhouseholdswithandwithoutchildren.Areaofresidenceisincludedtoaccountforthedifferencesineconomicopportunities—andthusdifferentmobilityprospects—betweenurbanandruralresidents.Socioeconomicmobilityprofilesalsovarybygender(Narayanetal.2018),whichmayaffectexpectationsofmobilityifsuchexpectationsareformedbylearningfromexperience

(Piketty1995)

.Religiouspeoplewereshowntodiscountthefuturelessandmayalsohavedifferentpreferencesrelatedtoinvestmentsinthepublic

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educationsystem

(Carteretal.2012)

.Morerisk-averseindividualsdiscountthefuturemorebecauseoftheiraversiontouncertainty.Totheextentthatmovinguptheincomeladdercanbeseenasindicativeofsuccessinlife,beliefsaboutwhatunderpinssuchsuccess—hardwork,skills,andpoliticalconnections—isimportant(Alesina,Stancheva,andTeso2018).Supportforpoliciespromotingmeritocraticadvancement(advancementsachievedthroughhardworkandintelligence/skills)dependsonwhetherhumancapitalinvestmentsareseentobeinstrumentalforsocioeconomicmobility.Themodelalsoincludescountryfixedeffectstoaccountforheterogeneityacrosscountriesthatmaybecorrelatedwithindividualbeliefsaboutfuturemobilityandwillingnesstosupporttax-financedreforms.

Unobservedfactorsmayalsoaffectourresults.Forinstance,anindividualwithapessimisticdispositionmayhavemorenegativeexpectationsoffuturesocioeconomicmobilityandholdpessimisticviewsaboutthereforms,andthusbelesslikelytosupportsuchreforms,biasingthecoefficientsonthemobilityexpectationsvariable.Toaddresssuchendogeneity,weinstrumentindividualexpectationsoffuturemobilitywithcohort-levelestimatesofpastintergenerationalmobilityforthe10-yearcountry-birthcohortcorrespondingtoagivensurveyrespondent,obtainedfromtheestimatesby

Torre,Lokshin,andFoster(forthcoming).

Ourchoiceofpastintergenerationalmobilityasaninstrumentforfuturemobilityexpectationsdrawsontheliteratureshowingthatpastmobilityexperiencesinformpeople’sperceptionsandexpectationsofthefuture

(Piketty1995;

KelleyandKelley2009;

Cojocaru2023)

.Ourexclusionrestrictionisbasedontheargumentthatthereisnotheoreticalreasonwhymeasuresofpastintergenerationalmobilityatthebirth-cohortlevelshouldaffectindividualsupportforeducationreformsdirectlybeyondtheireffectonmobilityexpectations.Weshouldnote,however,thatwecannotexcludethepossibilityofcohortshocks,namelythatcohortmeasuresofpastmobilitymaystillbecorrelatedwithotherfactorsthatmayaffectsupportforeducationspending.Assuch,theIVestimatesshouldsimilarlybeviewedwiththesecaveatsinmind.

4.Data

Weusedatafromthe2010,2016,and2023roundsoftheLifeinTransitionSurvey(LiTS)conductedbytheEuropeanBankofReconstructionandDevelopment(EBRD)andtheWorldBank

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(EBRD2023)

.ThesurveycoversthetransitioneconomiesofEuropeandCentralAsiaandseveralcomparatorcountriesinWesternEurope,theMiddleEast,andNorthAfrica.

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The2010round

includes35countries,the2016round34countries,andthe2023round39countries.Thesurveyisbasedonanationallyrepresentativesampleofaround1,000householdspercountryinthesecondandfourthroundsandaround1,500householdspercountryinthethirdround.

Wecapturesupportfortax-financedinvestmentsineducationbyexaminingresponsestothequestion“wouldyoubewillingtogiveuppartofyourincomeorpaymoretaxesifyouweresurethattheextramoneywasspentoneducation?”Thisdummyvariableisthemaindependentvariableofouranalysis.

Ourmeasureofexpectationsoffuturemobilityisbasedonthetwosocialladderquestions:“Pleaseimaginea10-stepladderwhereonthebottom,thefirststep,standthepoorest10percentpeoplein[COUNTRY],andonthehigheststep,the10th,standtherichest10percentpeoplein[COUNTRY].Onwhichstepoftheladderisyourhouseholdtoday?”and“Whereontheladderdoyoubelieveyourhouseholdwillbefouryearsfromnow?”Wetakethedifferencebetweentheexpectedfutureandcurrentincomeladderpositionsasourmeasureofexpectationsoffuturemobility,whichrangesfrom–9to+9.Wealsoconductasensitivityanalysisthatreliesonlyonthedirectionoftheexpectationsbycreatingavariablewiththreecategories(downwardlymobile,static,andupwardlymobile)basedonthedifferencebetweentheladderpositiontodayandtheladderpositionfouryearsfromtoday.

TheLiTSdataalsoallowforassessmentoftheexpectationofintergenerationalmobility,whichiscapturedbyresponsestothefollowingstatement:“Childrenwhoarebornnowwillhaveabetterlifethanmygeneration,”withrespondentsansweringonafive-stepLikertscalerangingfromstronglydisagreetostronglyagree.Weconstructadummyvariablethattakesthevalueof1iftheansweriseitheragreeorstronglyagreeandzerootherwise.

2Weusethesecond,third,andfourthroundsoftheLiTS,forwhichcomparableinformationonparentaleducationbackgroundisavailable.TheclassificationofparentaleducationinthefirstroundoftheLiTSisnotcomparabletothatofthefollowingrounds,whichiswhyweexcludeditfromourstudy.

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Anindividual’sriskaversioniscapturedbyassessingresponsestothefollowingquestion:“Pleaserateyourwillingnesstotakerisksingeneral,onascalefrom1to10,where1meansthatyouarenotwillingtotakerisksatalland10meansthatyouareverymuchwillingtotakerisks.”(Tomeasureriskaversion,wereversethecategoriessothathighervaluesimplyhigherriskaversionandlowervaluesimplylowerriskaversion.)Tocapturebeliefsaboutthefairnessofsocioeconomicmobility,werelyonresponsestothefollowingquestion:“Inyouropinion,whichofthefollowingfactorsisthemostimportanttosucceedinlifein[COUNTRY]now?”Answeroptionsareeffortandhardwork,intelligenceandskills,politicalconnections,breakingthelaw,andothers.Wecollapsetheseoptionsintoabinaryvariablethattakesavalueof1ifrespondentsthinkthatsuccessstemsfrommeritocraticreasons(effort/hardworkorintelligence/skills)andzeroifitreliesonpoliticalconnections,breakingthelaw,orother.

Table1

presentsthesummarystatistics.

5.Mainresults

Inthissection,wefirstexaminetherelationshipbetweenexpectationsoffuturemobilityandwillingnesstopayforeducationinvestmentsacrosscountriesinthelatest(2023)LiTSround.Respondents’averageexpectationsoftheirownmobilityandthatofchildrenborntodayvarysignificantlyacrosscountries.Incountrieswherethepopulationismoreoptimisticaboutthefuture,theshareofthepopulationwillingtopaypartofitsincomeorpaymoretaxestosupportinvestmentsineducationisalsolarger(panelaof

Figure1)

.Positiveexpectationsabouttheprospectsofchildrenborntodaywithrespecttothecurrentgenerationarealsocorrelatedwithgreaterwillingnesstopayforeducationinvestments(panelbof

Figure1)

.

Wethenestimatetherelationshipbetweensupportfortax-financededucationreformsandexpectationsofone’sownfuturemobilityconditionalontherespondent’scharacteristics.

Table

2

reportsthemarginaleffectsfromthisbaselineprobitestimationinSpecification1.

Theresultsindicatethattherespondent’seducationallevelisastrongpredictorofsupportforinvestmentsineducation,consistentwithearlierfindings

(BusemeyerandGarritzmann2017;

Garritzmann,Busemeyer,andNeimanns2018)

.Theshareofthepopulationwithprimaryeducationsupportingeducationreformsis23percentagepointslowerthanthatofrespondents

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withpost-graduateeducation;forpeoplewithupper-secondaryeducation,supportis19percentagepointslower.Theassociationsbetweenwillingnesstopayforeducationreformsandage,gender,religiousaffiliation,areaofresidence,householdcomposition,andincomearenotstatisticallysignificant.

Turningtoourprimaryvariableofinterest,morepositiveexpectationsoffuturemobilityareassociatedwithincreasedwillingnesstosupporteducationreforms:Movinguponestepontheincomeladderisassociatedwitha1.4percentagepointincreaseintheprobabilityofsupportinginvestmentsineducation.

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Atfirstglance,agreaterwillingnesstobearhighertaxesforinvestmentsineducationmayseemtocontradictthecanonicalPOUMhypothesis,whichpositsthatitwillbeintheself-interestofupwardlymobileindividualstosupportlowertaxrates.However,aswehavearguedinsection3,ifreachinghigheducationalattainmentrequiresprivateinvestmentsonthepartofparents,theninvestmentsinimprovingeducationwouldactuallybeconsistentwithself-interestforthosewhoexpectupwardmobility,becausetheirchildrenwillbemorelikelytobenefitfromimprovededucation.

Wefurtherhypothesizedthatpeoplewhothinksuccessreflectshardworkandskills(about70percentofthesample)aremorewillingtosupportreformsthatrewardmeritocraticeffortsthanpeoplewhobelievethatsuccessreflectsother(nonmeritocratic)factors.Theperceptionoffairnesscouldbeinterpretedastheeffectivenessofconvertingskillsandeducationintofutureincomes.Beliefsaboutfairnessarealsoassociatedwithexpectationsoffuturemobility.Themeandifferencebetweenfutureandcurrentladderpositionsinoursampleistwiceashighamongthosewhoperceivethepathtosuccesstobedeterminedbymeritocraticfactors.

Peoplewithaloweraversiontorisk

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mayalsohavealowerdiscountratethanpeoplewithahigherriskaversionandmay,therefore,bewillingtoinvestmoreinreformsthatbringpayoffsinthefuture.Risktoleranceisalsocorrelatedwithexpectationsofmobility–themeandifference

3Wealsoestimatespecificationswithpolynomialsoftheexpectationsofmobilityvariables(quadraticandcubic).Theseestimationsfailedtoproducesignificantcoefficientsonnonlinearparameters.

4Inoursample,theaveragedegreeofrisktolerance(fromalevelof1beingcompletelyriskaversetoalevelof10beingcompletelyrisklover)isabout4.8,suggestingonaverageamildriskaversion.Oftheindividualsinthesample,12.3percenthavearisktoleranceabove7,and36.1percenthavearisktolerancebelow4.

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betweenthefutureandcurrentincomeladderpositionsisthreetimeshigherinoursampleforthosewithrisktoleranceabove7comparedtothosewithrisktolerancebelow4.

Totestthesehypotheses,were-estimatethebaselinemodel,addingcontrolscapturingfairness(Specification2in

Table2)

,riskaversion(Specification3),andbothjointly(Specification4).Theestimationsshowthatpeoplewhobelievethatsuccessintheirsocietyismeritocratic(determinedbyhardworkandintelligence/skills)are9percentagepointsmorelikelytogiveuppartoftheirincomeorpayadditionaltaxestosupportinvestmentsineducationthanpeoplewhothinkthatsuccessinlifereflectspersonalconnectionsorotherreasonsunrelatedtohardworkorskills.Riskaversionis