An assessment of income inequality and related perceptions in Maltese society

Abstract

The distribution of income in a society is a primary indicator of how the benefits derived from economic activity are allocated among its various members. Redistribution efforts are a key element in attaining an inclusive society, in which all members, individually and collectively, have the opportunity to reach their potential. Classical models hypothesise that the preference for redistribution is mainly dependent on self-interest, however, more recent studies have shown a significant distance between one’s own actual and perceived income rank, as well as the actual and perceived level of income inequality in society. This dissertation makes use of an original income dataset to track the development of individual income inequality over the past decade. The study finds that individual income inequality increased marginally over the past decade, with the middle classes bearing the negative consequences. A survey methodology was also employed to investigate the beliefs and perceptions of Maltese society with regards to income inequality. The study confirms the presence of a negative systematic bias, whereby poorer individuals overestimate their position on the income distribution scale, and richer individuals underestimate their rank. The actual level of individual income inequality was established at 35.1 percent, while that perceived stood at 42.6 percent, and that desired was estimated at 29.8 percent. Finally, no relation was established between the preference for redistribution and information provided to correct for misperceptions.