Fiscal Expansion and Households' Income Inequality Expectations: A Survey Experiment

ABSTRACT We study how individuals' perceptions of current and future levels of income inequality change during periods of expansionary fiscal policy. In a randomized controlled trial (RCT), we provide information on fiscal expansion to a representative sample of the German population. Our findings reveal that combining a fact‐based (numerical) information treatment with a narrative treatment about fiscal expansion plans reduces inequality expectations among respondents who are ex‐ante dissatisfied with the government's economic policy. These effects are more pronounced among respondents without a college degree or with low political interest, highlighting the importance of narrative information for individuals who are likely to benefit most from it. We explore potential mechanisms by examining revisions in macro‐ and micro‐level assessments of future economic conditions and find that respondents primarily update their expectations regarding economic growth and individual layoff risk.