Redistribution In Democracies Research Articles

Political Leaders, Economic Hardship, and Redistribution in Democracies: Impact of Political Leaders on Welfare Policy

This study analyzes how political leaders’ material backgrounds affect redistributive policies in democracies. Building on political socialization theory, we argue that politicians with personal experience of economic hardship are more likely to have sympathetic attitudes toward redistribution than those without such experience, particularly where political constraints are weak. We posit that firsthand knowledge of economic hardship helps political leaders understand why the poor need government redistribution, and leads them to support more generous social welfare policies. Analyzing an original dataset of leaders’ material background in 74 democratic countries between 1980 and 2011, we find that leaders who experienced economic hardship in their youth increase social welfare spending during their tenure, particularly when political constraints are weak. Following prior studies on leaders’ personal experiences and policy outcomes, this study provides a new approach to redistribution and welfare policy.

Redistribution Without a Median Voter: Models of Multidimensional Politics

Most work on redistribution in democracies is anchored in long-standing unidimensional models, notably the seminal Meltzer-Richard-Romer model. When scholars venture outside the security of unidimensionality, many either abandon theoretical rigor or miss the full consequences of adding more dimensions (whether ideological or economic). There is now a substantial literature on redistributive politics in multidimensional policy spaces, but it tends to be very technical and frequently misinterpreted, if not ignored. This purpose of this article is to review this relatively new literature using simple graphical representations, focusing on the key assumptions, intuitions, and results. We show how issue bundling, issue salience, and the distribution of preferences can affect redistribution, and we discuss the role of political institutions in inducing particular outcomes. We also highlight the opportunities for dialogue between formal models and more constructivist approaches by exploring the effects of political entrepreneurs manipulating salience, institutions, and even identities.

A Comparative Analysis of Inequality and Redistribution in Democracies

A Comparative Analysis of Inequality and Redistribution in Democracies

Misperceiving inequality

AbstractA vast literature suggests that economic inequality has important consequences for politics and public policy. Higher inequality is thought to increase demand for income redistribution in democracies and to discourage democratization and promote class conflict and revolution in dictatorships. Most such arguments crucially assume that ordinary people know how high inequality is, how it has been changing, and where they fit in the income distribution. Using a variety of large, cross‐national surveys, we show that, in recent years, ordinary people have had little idea about such things. What they think they know is often wrong. Widespread ignorance and misperceptions emerge robustly, regardless of data source, operationalization, and measurement method. Moreover, perceived inequality—not the actual level—correlates strongly with demand for redistribution and reported conflict between rich and poor. We suggest that most theories about political effects of inequality need to be reframed as theories about effects of perceived inequality.

The Effects of Income Inequality and Redistribution in Democracies: A Dynamic Panel Data Approach

In this paper, the simultaneous effects of the inequality and redistribution on economic growth are tested for the whole sample and for a subset of democratic countries, following system-GMM estimation on a panel dataset over a period from 1960 to 2010. Overall, net inequality has a negative significant effect on subsequent 5 years for both samples, while redistribution impact is only significant in democracies. The findings are related to the fact that in democracies, the governments tend to significantly redistribute more.

The Political Economy of Redistribution Policy

We review the literature on the public choice approach to explaining redistribution policies. The focus is on policies that are pursued with the sole reason to redistribute initial endowments. Moreover, we restrict ourselves to redistribution in democracies. In democratic settings, generic redistribution games lack equilibria. Structure-inducing rules that give rise to realistic redistribution patterns may concern the underlying economic model, political institutions, and firmly established preferences, beliefs, and attitudes of the voters. We present the respective lines of argument in turn and then present the related empirical evidence.

Democratic redistribution and rule of the majority

Does redistribution in democracies cater to the will of the majority? We propose a direct empirical strategy based on survey data that needs not assume that voters are guided by pecuniary motives alone. We find that most democracies implement the median voter's preferred amount of redistribution and the probability to serve the median voter increases with the quality of democracy. However, there is a non-negligible share of democracies that implement a minority-backed amount of redistribution. Political absenteeism of the poor cannot explain such outcomes. Rather, they can be explained by the electoral bundling of redistribution with values and rights issues.

Regime Type, Inequality, and Redistributive Transfers in Developing Countries

The debate on whether democracy and inequality increase the level of redistribution in a country is still ongoing. We construct a model that predicts a higher probability of redis-tribution in democracies than in autocracies. Further, with higher initial inequality, there should be more redistribution in democracies but not necessarily in autocracies. We test these predictions using data on social transfers in developing countries for the period 1960–2010. We con?rm that democracy increases redistribution and, to some extent, that there is more redistribution with rising inequality. Hence, on the basis of a direct measure of redistribution, we present evidence to con?rm the median voter theorem.

Immiserizing Redistribution: Voting to Get Poorer in the Meltzer-Richard Model

In the classic Meltzer and Richard (1981) model, the canonical model of income redistribution in democracies, voters, heterogeneous on the sole dimension of idiosyncratic productivity, evaluate an income-redistributive program that pays everyone a lump-sum income subsidy financed by a distorting income tax levied on all. The political-equilibrium policy under majority rule is the tax rate most preferred (in a utility sense) by the median voter. The larger the gap between the median and mean income, the larger is the scale of income redistribution favored by the median voter. But does the median voter actually end up with more income post redistribution? We establish, somewhat ironically, that the median voter (and many poorer voters) in the Meltzer-Richard model may support income redistribution that leaves them poorer in income terms. Indeed, the basis for their support may not be more income but more leisure. The analysis spotlights the fact that transfer income, unlike labor income, requires no direct sacrifice of leisure.

Counting Calories: Democracy and Distribution in the Developing World1

How does regime type affect the poor? Are certain types of regimes better at translating economic growth into consumption for the world’s least privileged citizens? We propose an alternative measure of transfers to the poor that is nearly universally available and innately captures distribution: average daily calorie consumption. In sharp contrast to the consumption of material goods or the accumulation of wealth for which humans have shown no upper bound on their ability to achieve, biological limits make it impossible for a small number of individuals to consume most of a nation’s calories. Democracies and hybrid regimes— which combine elements of autocracy and democracy—are better at translating economic growth into total calorie consumption than autocracies and perform strikingly similarly in this regard; democracies outperform both hybrid regimes and autocracies, however, in converting growth into higher quality calories from animal sources. Does democratic governance reduce inequality? Does it deliver material benefits to the poor? Recent years have witnessed a surge in interest in the relationship between democracy, income inequality, and the well-being of the materially least well-off. Research in this area has delivered a swath of findings associating democracy with lower inequality, better healthcare, more spending on education, and even rural electrification. Yet, the most notable feature of this research might be its failure to reach consistent results or to identify key mechanisms. Since the influential theoretical results of Meltzer and Richard (1981) demonstrated that inequality should raise redistribution in democracies, much empirical research has focused on the paradox of redistribution: explaining why the predicted redistribution meets with contradictory results in the data. Research asserts that democracy diminishes (Li and Reuveny 2003), first increases then diminishes (Chong 2004; Chang 2007), or has little effect (Timmons 2010) on income inequality; that redistribution increases (Milanovic 2000; Kenworthy and 1

EMERGENCE AND PERSISTENCE OF INEFFICIENT STATES

We present a theory of the emergence and persistence of inefficient states based on patronage politics. The society consists of rich and poor. The rich are initially in power, but expect to transition to democracy, which will choose redistributive policies. Taxation requires the employment of bureaucrats. By choosing an inefficient state structure, the rich may be able to use patronage and capture democratic politics, so reducing the amount of redistribution in democracy. Moreover, the inefficient state creates its own constituency and tends to persist over time. Intuitively, an inefficient state structure creates more rents for bureaucrats than would an efficient one. When the poor come to power in democracy, they will reform the structure of the state to make it more efficient so that higher taxes can be collected at lower cost and with lower rents for bureaucrats. Anticipating this, when the society starts out with an inefficient organization of the state, bureaucrats support the rich, who set lower taxes but also provide rents to bureaucrats. We obtain that the rich‐bureaucrats coalition may also expand the size of bureaucracy excessively so as to generate enough political support. The model shows that an equilibrium with an inefficient state is more likely to arise when there is greater income inequality, when bureaucratic rents take intermediate values, and when individuals are sufficiently forward-looking. (JEL: P16, H11, H26, H41)

A little fairness may induce a lot of redistribution in democracy

We use a model of self-centered inequality aversion suggested by Fehr and Schmidt (Quart. J. Econom. 114 (3) (1999) 817) to study voting on redistribution. We theoretically identify two classes of conditions when an empirically plausible amount of fairness preferences induces redistribution through referenda. We test the predictions of the adapted inequality aversion model in a simple redistribution experiment and find that it predicts voting outcomes far better than the standard model of voting assuming rationality and strict self-interest.

A Little Fairness May Induce a Lot of Redistribution in Democracy

We use a model of self-centered inequality aversion suggested by Fehr and Schmidt (1999) to study voting on redistribution. We theoretically identify two classes of conditions when an empirically plausible amount of fairness preferences induces redistribution through referenda. We test the predictions of the adapted inequality aversion model in a simple redistribution experiment, and find that it predicts voting outcomes far better than the standard model of voting assuming rationality and strict self-interest.

Social Limits to Redistribution

In many countries, equality of political rights, including the right to vote over taxes and transfers, goes along with substantial inequality of economic conditions. This observation lies at the root of one fundamental issue in political economy, one about the factors that limit the extent of redistribution in democracies. The conventional economic wisdom on this issue can roughly be summarized by two arguments. Firstly, redistributive taxation may be limited by various kinds of incentive costs of taxation [as, e.g., in James A. Mirrlees (1971), Kevin W.S. Roberts (1977), Dennis N. Epple and Thomas Romer (1991), and Thomas Piketty (1995)]. Secondly, redistribution may be dampened by the lobbying activity of high-income groups and by various imperfections inherent to the political process that determines the tax system [as, e.g., in Gary S. Becker (1983) and John E. Roemer (1995)]. While both arguments offer illuminating insights into the phenomenon of redistribution, they are also based on a very crude description of human behavior, one which ignores social motivations of action, both in the economic and the political sphere. The present paper develops an explanation that takes such motivations into account. Specifically, it shows that limits to redistribution may arise when economic inequality has an informational value for social decisions. Our approach is based upon the following observation: many goods and decisions that heavily affect an individual’s quality of life are not allocated or made through markets but through social interactions (Thomas Scitovsky, 1976). For instance, although people have strong preferences over how they are treated by others and over whom they mate with, these things are not the object of market transactions. A number of sources of satisfaction, like conversation, dinners and parties, playing with others, and being observed and admired, are nonmarket goods, for which a keen social competition between individuals often develops. As shown by Harold Cole et al. (1992), the existence of social—rather than market—competition for some goods can endogenously generate a concern for relative position in the income distribution. When information about relative income is private, individuals become interested in the observable consumption differentials between them and their social competitors. Since consumption differentials are influenced by redistributive taxation, the political attitudes of people toward redistribution will be shaped by its expected impact on social competition. In some identifiable environments, this concern for social success may be the crucial factor that limits the extent of redistribution desired by a majority of voters. Specifically, while the middle class may obtain economic benefits from a large amount of redistributive taxation, it may oppose an equalization of living standards since this would harm its social success. The fear of losing social status in favor of the poor induces the middle class to enter a political alliance with the rich which supports conservative taxation programs. In the sociological literature, scholars of voting behavior have often suggested that the need for social recognition plays a crucial role in shaping political attitudes. Seymour M. Lipset (1967) pointed out that white-collar workers tend to be socially valued similarly as those higher in the system and, although their income may be only slightly larger than that of manual workers, white collars are much more likely to * Corneo: Department of Economics, University of Osnabruck, Rolandstrasse 8, D-49069 Osnabruck, Germany, CESifo, Munich, and CEPR, London; Gruner: Department of Economics, University of Mannheim, D-68131 Mannheim, Germany, IZA, Bonn, and CEPR, London. We would like to thank Emmanuelle Auriol, Dieter Bos, Peter Funk, Mike Hout, Olivier Jeanne, Peter Jonas, Georg Noldeke, Thomas Piketty, Regis Renault, John Roemer, Jens Weidmann, and three anonymous referees for insightful comments and suggestions. We have also benefited from the comments of participants at workshops and conferences in Barcelona, Bonn, Davis, Jena, Maastricht, Magdeburg, Mannheim, Montreal, Munich, Rotterdam, Silvaplana, Tel Aviv, Tilburg, Toulouse, and Warwick, at which we presented earlier versions of this work. Financial support from the Deutsche Forschungsgemeinschaft, SFB 303 at the University of Bonn, is gratefully acknowledged.