Do dictatorships redistribute more?

This paper examines the effect of political institutions on fiscal redistribution for a country-level panel from 1960–2010. Using data on Gini coefficients before and after government intervention, we apply a measure of effective fiscal redistribution that reflects the effect of taxes and transfers on income inequality. Our findings clearly indicate that non-democratic regimes demonstrate significantly greater direct fiscal redistribution. Subsequently, we employ fiscal data in an attempt to enlighten this puzzling empirical finding. We find that dictatorial regimes rely more heavily on cash transfers that exhibit a direct impact on net inequality and consequently on the difference between market and net inequality (i.e., effective fiscal redistribution), whereas democratic regimes devote a larger amount of resources to public inputs (health and education) that may influence market inequality but not the difference between market and net inequality per se. We argue that the driving force behind the observed differences within the pattern on government spending and effective fiscal redistribution is that democratic institutions lead survival-oriented leaders to care more for the private market, and thus to follow policies that enhance the productivity of the whole economy.     

The Distributional Impact of Public Goods Provision: A Veil of Ignorance Approach

The "veil of ignorance" approach is used to consider the redistribution implied by different tax-benefit systems. Assuming a (hypothetical) ex-ante situation in which individuals lack any knowledge about their future income, redistribution from rich to poor can be seen as a form of insurance. Taking redistribution and insurance as synonymous, the analysis derives cases of redistributionally neutral systems of taxation and public good provision.
JEL classification : H 23; D 30;, H 41     

Does grassroots democracy reduce income inequality in China?

Using village and household survey data collected from 48 villages of eight Chinese provinces for the period 1986–2002, this paper studies how the introduction of village elections affects income distribution at the village level. We estimate both a static fixed-effect panel model and a dynamic panel model for the within-village Gini coefficient and take care of the endogeneity of the introduction of elections. The dynamic panel model shows that having elections reduces the Gini coefficient by 0.04, or 14.3% of the sample average. We also find that elections tend to increase the income shares of poorer portions of the population. Further econometric analysis based on dynamic panel models shows that elections increase per-capita public expenditures by 271 Yuan, but do not increase the level or progressiveness of net or total income transfer in a village. Therefore, elections' positive role in reducing income inequality is not played through more income redistribution, but through more pro-poor public investment.     

Indexing Out of Poverty? Fiscal Drag and Benefit Erosion in Cross-National Perspective

We assess how tax-benefit policy developments in 2001–11 affected the household income distribution in seven EU countries. We use the standard microsimulation-based decomposition method, separating further the effect of structural policy changes and the uprating of monetary parameters, which allows us to measure the extent of fiscal drag and benefit erosion in practice. The results show that despite different fiscal effects, policies overall mostly reduced poverty and inequality and both types of policy developments had sizeable effects on the income distribution. We also find that the uprating of monetary parameters not only had a positive effect on household incomes, meaning fiscal drag and benefit erosion were avoided, but generally also contributed more to poverty and inequality reduction than structural policy reforms.     

Immigration,Conflict, and Redistribution

In this paper, we analyze how the possibility of conflict between natives and immigrants shapes income redistribution in developed democracies. This possibility can generate income redistribution towards immigrants even if they have no voting rights. We show that the threat of conflict between natives and immigrants lowers vertical income redistribution (from the rich to the poor) as the level of immigration increases. The opposite holds for horizontal income redistribution (from natives to immigrants), which increases with the level of immigration. Income inequality weakens the negative effect of immigration on vertical redistribution, but it also reduces horizontal redistribution. These theoretical predictions are consistent with the results of our empirical analysis on data from 29 European countries: larger immigrant populations are associated with more redistribution towards immigrants and lower vertical redistribution.     

Income inequality, consumption, and social-status seeking

Using the Chinese Urban Household Survey data between 1997 and 2006, we find that income inequality has a negative (positive) effect on household consumption net of education expenditures (savings) even after we control for household income. We argue that people save to improve their social status when social status is associated with pecuniary and non-pecuniary benefits. Rising income inequality can strengthen the incentives of status-seeking savings by increasing the benefit of improving status, and by enlarging the wealth level required for status upgrading. We also find that the negative effect of income inequality on consumption is stronger for poorer and younger people and that income inequality stimulates more education investment, which are consistent with the status-seeking hypothesis.     

The net social wage in greece 1958-95

The object of this paper is to assess the net distributive impact of state expenditures and revenues on labour income in Greece for the 1958-95 period. This effect is measured by the net social wage defined as the difference between the total benefits received by labour from state spending and the labour taxes. We also discuss certain issues related to the empirical methodology employed in the present and similar studies and the way its inconsistent use has affected inter-country comparisons of the net social wage in the literature. Our empirical findings for Greece indicate that for the entire period no redistribution of income in favour of labour has taken place via the actions of the state. The average net social wage is very close to zero even though during the last decade we observe an increasing involvement of the state in the reproduction of labour. The positive net social wage of the few recent years coincided with high public deficits and appears to be a result of slow growth, high unemployment rates and compensation for the adverse developments for labour in the market distribution of income.     

Inequality in democracies: Testing the classic democratic theory of redistribution

The classic democratic theory of redistribution claims that an increase in the mean-to-median (MM) income ratio causes a majority coalition in the electorate to collectively demand more redistribution. The functional dependence of redistribution on the MM income ratio is tested in parametric and nonparametric regression frameworks using an OECD panel dataset. While the parametric regression model is found to be misspecified rendering subsequent inference invalid, the robust nonparametric regression model fails to uncover evidence that the MM income ratio is relevant for predicting redistribution.     

Political ideology and the intragenerational prospect of upward mobility

We re-examine the effect of prospects of upward mobility (POUM) on the support for redistribution. Unlike previous studies, we analyse this relation in an intragenerational context and consider the moderating effect of political ideology through which mobility expectations affect redistributive preferences. We find that the POUM effect is conditional on political preferences. That is, we find that only for right-wing individuals expected upward income mobility negatively affects support for redistribution. Left-wing individuals prefer redistribution, regardless of expected upward income movements.     

Redistribution under general decision rules

We study the political economy of redistribution over a broad class of decision rules. We suggest a simple and elegant procedure to select a robust equilibrium from the multiplicity in the core. Equilibrium policy depends on the full income profile, and, importantly, the preferences of two decisive voters. We show that the effect of increasing inequality depends on the decision rule and the shape of the income distribution; redistribution will increase if both decisive voters are “relatively poor,” and decrease if at least one is sufficiently “rich.” Additionally, redistribution decreases as the polity adopts increasingly stringent super-majority rules.     

DISENTANGLING THE ANNUITY FROM THE REDISTRIBUTIVE ASPECTS OF SOCIAL SECURITY IN THE UNITED STATES*

In the United States, the life-cycle relationship between initial Social Security contributions and subsequent benefits causes the effect of Social Security on income distribution to be overestimated in a single-period analytical framework. By separating the annuity from the redistributive aspects of Social Security we provide a life-cycle framework for measuring its net effect on redistribution. To this point in its history, we find all income classes have received positive net life-cycle income transfers and, in an absolute sense, upper-income groups have done at least as well as lower-income groups. This suggests a reason for the near-universal support of Social Security by past generations, as well as the controversy which now surrounds it. As it becomes apparent to younger cohorts of taxpayers that many of them will be net losers, it is inevitable that Social Security will be subject to the same controversy as other welfare programs which attempt to redistribute income.     

Monopolistic competition and income dispersion

We develop a model of monopolistic competition that accounts for consumers’ heterogeneity in both incomes and preferences. This model makes it possible to study the implications of income redistribution on the toughness of competition. We show how the market outcome depends on the joint distribution of consumers’ tastes and incomes and obtain a closed-form solution for a symmetric equilibrium. Competition toughness is measured by the weighted average elasticity of substitution. Income redistribution generically affects the market outcome, even when incomes are redistributed across consumers with different tastes in a way such that the overall income distribution remains the same.     

存在收入差异的社会保障制度选择--基于一个内生增长世代交替模型

社会保障制度选择是经济协调发展中的重要课题.本文建立了一个考虑存在收入差距的异质性个体的内生增长世代交替模型,综合考察了社会保障制度选择对经济增长和收入再分配的影响.分析表明,现收现付制对稳定状态的经济增长率有负面影响,但其收入再分配功能对提高社会总福利存在正向作用,通过数值模拟发现当收入差距较小时,现收现付制对经济增长的抑制作用较强,随着收入差距的拉大,收入再分配功能将逐渐居于主导地位,其综合效应可以改善社会福利.在一定的收入差异程度范围内,存在一个使社会福利最大化的最优现收现付制比率.基于对中国实际的分析,本文认为我国未来的社会保障制度改革应该注重发挥现收现付制的再分配功能.     

Non-manipulable division rules in claim problems and generalizations

When resources are divided among agents, the characteristics of the agents are taken into consideration. A simple example is the bankruptcy problem, where the liquidation value of a bankrupt firm is divided among the creditors based on their claims. We characterize division rules under which no group of agents can increase the total amount they receive by transferring their characteristics within the group. By allowing agents’ characteristics to be multi-dimensional and choosing the meaning of variables appropriately, our model can subsume a number of existing and new allocation problems, such as cost sharing, social choice with transferable utilities, income redistribution, bankruptcy with multiple types of assets, probability updating, and probability aggregation. A number of existing and new results in specific problems are obtained as corollaries.     

CAN HOUSEHOLDS AND WELFARE STATES MITIGATE RISING EARNINGS INSTABILITY?

We compare the evolution of earnings instability in Germany and the United Kingdom, two countries which stand for different types of welfare states. Deploying data from the German Socio‐Economic Panel (SOEP) and the British Household Panel Survey (BHPS), we estimate permanent and transitory variances of male income over the period 1984–2009 and 1991–2006, respectively. Studies in this literature generally use individual labor earnings. To uncover the role of welfare state and households in smoothening earnings shocks, we compute different income concepts ranging from gross earnings to net equivalent household income. We find evidence that the overall inequality of earnings in Germany and the United Kingdom has been rising throughout the period due to both higher permanent earnings inequality and higher earnings volatility. However, taking institutions of the welfare state and risk‐sharing households into account, we find that the volatility of net household income has remained fairly stable. Furthermore, redistribution and risk insurance provided by the welfare state is more pronounced in Germany than in the United Kingdom.     

Don't shoot yourself in the foot! A (real-effort task) experiment on income redistribution and voting

This paper reports results from a laboratory experiment that investigates the Meltzer–Richard model of equilibrium tax rates in which individuals are either low or high skilled workers and face a real-effort task that includes leisure at the work place. We find that a large proportion of low-skilled workers vote for the lowest tax rate (the one that gives them the lowest payoff), especially when the alternative tax rate is very high. However, this proportion is significantly reduced in treatments in which the subjects are given extra information about how the tax operates in redistributing income. This result suggests that the lack of information about the role of taxes in income redistribution may be an important factor in explaining the counter-intuitive voting behavior of low-income voters over income redistribution. We also find some support that the prospect of upward mobility and the belief in the negative effect of taxes on productivity make low-income voters support low tax rates, especially when the alternative tax rate is very high.     

Finance,income inequality and income redistribution

Using a panel fixed effects model for a large sample of countries covering 1975–2005, we test the hypothesis that income inequality caused by finance (financial development, financial liberalization and banking crises) is related to more income redistribution than inequality caused by other factors. Our results provide evidence in support of this hypothesis. We also find that the impact of inequality on redistribution is conditioned by ethno-linguistic fractionalization. Our findings are robust to the inclusion of several control variables suggested by previous studies.     

Racism and redistribution in the United States: A solution to the problem of American exceptionalism

The two main political parties in the United States in the period 1976–1992 put forth policies on redistribution and on issues pertaining directly to race. We argue that redistributive politics in the US can be fully understood only by taking account of the interconnection between these issues in political competition. We identify two mechanisms through which racism among American voters decreases the degree of redistribution that would otherwise obtain. In common with others, we suggest that voter racism decreases the degree of redistribution due to an anti-solidarity effect: that (some) voters oppose government transfer payments to minorities whom they view as undeserving. We suggest a second effect as well: that some voters who desire redistribution nevertheless vote for the anti-redistributive (Republican) party because its position on the race issue is more consonant with their own, and this, too, decreases the degree of redistribution in political equilibrium. This we name the policy bundle effect. We propose a formal model of multi-dimensional political competition that enables us to estimate the magnitude of these two effects, and estimate the model for the period in question. We compute that voter racism reduced the income tax rate by 11–18% points; the total effect decomposes about equally into the two sub-effects. We also find that the Democratic vote share is 5–38% points lower than it would have been, absent racism. The magnitude of this effect would seem to explain the difference between the sizes of the public sector in the US and northern European countries.     

The Distributive and Labor Supply Impact of the Minimum Insertion Income: The Case of Italy

This paper analyzes the redistributive and labor supply effects of extending at national level the Minimum Insertion Income, introduced experimentally in 1999 in some Italian municipalities. We develop a behavioral microsimulation tax-benefit model that allows for simultaneous labor supply decisions by household members, endogenous choice between dependent employment and self-employment, complete representation of the current Italian tax-benefit system. The results show a positive impact on both inequality and poverty, while overall labor supply reduces. On average magnitude of labor supply disincentive is small for married individuals, relatively larger for single persons and, within this category, for women than men.     

Lifetime vs Annual Tax-Transfer Incidence: How Much Less Progressive?

Annual fiscal incidence studies have found that income taxes and cash transfers are highly progressive and that their net effect is to redistribute income from rich to poor. Yet many argue Jhat such studies overstate the redistribution achieved by governments and that lifetime analysis is needed New results suggest that both income taxes and cash transfers are progressive on a lifetime basis, although they are much less progressive than annual studies suggest. The Australian tax-transfer system thus generates some lifetime redistribution from rich to poor, while also enforcing intra-personal redistribution across the life cycle of individuals.