Government Inequality Reduction in Comparative Perspective: A Cross-National Study of the Developed World

Abstract

This article offers an empirical assessment of a number of aspects of the reduction of market income inequality as a result of government taxes and transfers, and of the distributive effect of wage-bargaining institutions and minimum wages, in thirteen developed countries over the last twenty five years. It considers five broad themes in the literature: the median voter approach, which argues that government redistribution is associated with inequality of pre-government income; the power resources approach, which emphasizes partisan political contestation and electoral participation; the institutional approach, which focuses on political institutions such as the electoral system; the labor organization approach, which argues that labor unions play a key role in government efforts to achieve a more egalitarian distribution of market income; and the economic globalization approach, which argues that integration into the global economy has undermined public social protection efforts. The article finds consistent positive relationships between direct government redistribution and four variables: the extent of pre-government inequality; the level of electoral turnout; the share of the labor force that is unionized; and the presence of proportional representation electoral systems. As to wage-bargaining institutions, the article confirms that there is a positive relationship between the degree of coordination of wage bargaining and a relatively egalitarian distribution of earnings across various income groups, and (more weakly) between the level of statutory minimum wages in a country and the earnings share of the lowest-income group.