DP12636 | Inequality of opportunity, governance and individual beliefs


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Inequality of opportunity is a failure of economies to fairly tie incentives to effort and investment, across the socio-economic spectrum. But the actual limitations on economic activity due to this failure may depend on if people believe the system is unfair, and how well governing institutions safeguard fair-play. In this paper, I study whether inequality of opportunity is correlated with beliefs about fairness, and whether good governance can be a substitute in belief formations for decreases in inequality of opportunity. I find a that people in countries with recent increases in inequality of opportunity are less likely to believe that success is due to fair processes. The relationship is strongest in countries with poor quality governance. In countries with high quality governance, people appear to be more tolerant of inequality of opportunity, as it is only weakly reflected in their beliefs about process fairness. Finally, increases in income inequality also reduce the likelihood people perceive success as fair, but this relationship is not mitigated by good governance.