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This chapter focuses on an important aspect of economic inequality – the question of how people perceive inequality and whether these perceptions deviate in any meaningful way from statistical measures of inequality. Using a novel approach, the author investigates whether individuals across different countries are able to correctly estimate the shape of income distribution of the country where they reside. The author further investigates whether individuals have the distribution of a particular reference group in mind when they answer questions on inequality. The author finds that perceptions of inequality are frequently shaped by reference groups such as those formed according to educational attainment, age, and gender.

Purpose – The concept of equality of opportunity (EOp) goes back to Roemer (1993, 1998) who argues that a society should guarantee its members equal access to advantage regardless of their circumstances, while holding them responsible for turning that access into actual advantage by the application of effort. First, this chapter investigates how family background influences income acquisition in 17 European countries. Second, it particularly scrutinizes how governments affect EOp through redistributive policies.

Methodology – We apply two different methods in order to measure EOp: the Gini opportunity index defined by Lefranc et al. (2008) and a parametric estimation method. Effective redistribution is measured via income concepts at different stages of the tax-and-transfer schemes.

Findings – We find clear country clustering in terms of EOp for Nordic, Continental European, and Anglo-Saxon countries. For Eastern Europe our results are less definitive. By examining the impact of redistributive policies in the countries under analysis, it can be concluded that both taxes and transfers reduce inequality of opportunity (IOp), with social benefits typically playing a key role. Furthermore, the equalizing impacts of the tax-benefit system on IOp differ substantially from the ones observed in the traditional notion of inequality of outcomes.

Originality – We systematically compare two approaches used to identify the extent of EOp. Our results reveal that both methods yield rather robust country rankings for various circumstance sets. Furthermore, the impact of tax-benefit policies on EOp is rarely addressed in the existing literature. We contribute by focusing on effective redistribution directly related to different income concepts.

Individuals are completely responsible for their outcomes (income, utility, health and so on) and, therefore, total inequality is due to individual responsible choices. This view has been challenged by philosophers and economists for the last three decades since the magnum opus by John Rawls (1971). These authors have argued that individuals are only responsible for their own efforts, and, therefore, people should be compensated for a variety of circumstances beyond their control. The meritocracy approach rejects the existence of circumstances and, in accordance with this, considers that total inequality is due to inequality of effort. On the contrary, the equality of opportunity approach recognizes the existence of factors that affect individuals and over which they have no control. For the former approach, the relevant equilizandum is individual freedom of access to education, positions and jobs. For the latter approach, the relevant equilizandum is the set of available opportunities to acquire those attributes required to compete for a position or job.