Explaining Economic Perceptions: Early Life Experiences and High Inflation

• In Event: Information and Attitudes towards Trade

Abstract

Individuals show different perceptions of the economy when facing high inflation, but such variations are not adequately explained by conventional theories focusing on self-interest or cultural factors. This paper advances a socialization perspective in understanding people's economic evaluations, and I argue that they are jointly determined by individuals' early life experiences and current economic circumstances. Using the difference-in-difference method to study the changes in public opinion in the United Kingdom since 2021, I demonstrate that people with inflation exposure are indistinguishable from others when price increases are moderate, but their concern over inflation grows fast when the cost of living surges. They become more pessimistic in terms of current and future economic perceptions. Moreover, the memories of inflation and present crises contribute to the rise of fiscal conservatism and populist sentiments among these people. These findings underscore the importance of past experiences in explaining current economic attitudes and advance our understanding of the enduring effects of economic shocks.

Author

• Yujin Zhang, Columbia University