The Structure of Inequality and the Politics of Redistribution
Summary (3 min read)
Introduction
- Reference Against the current consensus among comparative political economists, the authors argue that inequality matters for redistributive politics in advanced capitalist societies, but it is the structure of inequality, not the level of inequality, that matters.
- The authors theory posits that middle-income voters will be inclined to ally with low-income voters and support redistributive policies when the distance between the middle and the poor is small relative to the distance between the middle and the rich.
- In addition, the authors present survey evidence on preferences for redistribution among middle-income voters that is consistent with their theory and regression results indicating that the left parties are more likely to participate in government when the structure of inequality is characterized by skew.
- Layout of this document may differ from the published version, also known as Disclaimer.
JONAS PONTUSSON Université de Genève
- Against the current consensus among comparative political economists, the authors argue that inequalitymatters for redistributive politics in advanced capitalist societies, but it is the structure of in-equality, not the level of inequality, that matters.
- The authors theory posits that middle-income voters will be inclined to ally with low-income voters and support redistributive policies when the distance between the middle and the poor is small relative to the distance between the middle and the rich.
- In addition, the authors present survey evidence on preferences for redistribution among middle-income voters that is consistent with their theory and regression results indicating that the left parties are more likely to participate in government when the structure of inequality is characterized by skew.
- Jonas Pontusson is Professor of Comparative Politics, Département de science politique, Université de Genève, 40, Boulevard du Pont d’Arve, 1211 Genève 4, Switzerland (Jonas.Pontusson@ unige.ch).
- The authors also thank Rafaela Dancygier and Lane Kenworthy for sharing their data.
SOCIAL AFFINITY AND POLITICAL COALITIONS
- The model of redistributive politics proposed by Romer (1975) and developed by Meltzer and Richard (1981) does not provide an adequate explanation of variation in the extent of government redistribution across OECD countries.
- As commonly noted (e.g., McCarty and Pontusson 2009, 669–72), the limitations of the RMR model may be attributed to its assumptions about either the demand for or supply of redistribution (or both).
- Luttmer’s (2001) influential analysis of individual-level support for welfare spending in the U.S. provides strong evidence of what he refers to as racial group loyalty.
- More recently, Shayo’s (2009) important contribution suggests that the concept of social affinity might be usefully extended to social classes defined by income.
- These authors posit that middleincome voters oppose redistribution because they fear it will enable the poor to gain access to middle-class neighborhoods and social networks, thereby undermining their own relative position in the status hierarchy.
EMPIRICAL SETUP
- The authors main empirical analysis consists of a series of models of redistribution (measured as the percentage change in Gini coefficients brought about by taxes and government transfers) and social spending (measured in percent of gross domestic product [GDP]).
- OECD data, relative to other sources of data on market inequality, is that it provides separate measures of the upper and lower halves of the earnings distribution, while also providing reasonably long time series of annual observations for the countries included in their analysis.
- From a theoretical point of view, it is important for us to control for the distribution of ethnic minorities across the income distribution, but here the authors run into serious problems of data and measurement.
- Working with a significantly larger data set, the authors include three additional control variables in their models of social spending.
Model Specifications
- For each country i and year t, their statistical models of redistribution treat the level of redistribution (Ri,t) as a function of previous levels (Ri,t − 1) and a set of policies and structural factors (Pi,t) that cause redistribution to deviate from the status quo.
- Because data on redistribution are unequally spaced, whereas values for the independent variables are annual, the authors follow Persson, Roland, and Tabellini (2007) in using a time- 17 Because they are simply interested in controlling for this denominator effect, they do not lag GDP growth.
- One methodological concern is the potential for nonstationarity, which could induce spurious correlations.
- When the authors correct for this by smoothing the variables in question using a moving average process with one lag, and then replicate their analysis using the smoothed data, they obtain results substantively equivalent to those they report.
- As with redistribution, this renders the estimation of fully specified fixed-effects models 22 We again estimate panel-corrected standard errors and correct for groupwise heteroscedasticity and contemporaneous correlation.the authors.the authors.
MAIN EMPIRICAL RESULTS
- Table 2 presents their first set of results, with redistribution as the dependent variable.
- It does not appear to proxy for the 90–10 ratio in their analysis.
- Regarding the 90–10 ratio, their results are consistent with previous studies, calling into question the RMR model’s prediction of a positive association between the level of inequality and redistribution.
- Two results in Table 3 appear counterintuitive: Unemployment and proportionality of electoral rules both turn out to be consistently associated with less nonelderly social spending.
- The results presented in Table 4 suggest that this is not the case.
CAUSAL MECHANISMS
- The results presented in Tables 2 to 4 are consistent with their theory of how the structure of inequality influences the politics of redistribution, but they do not demonstrate that the preferences of middle-income voters are the crucial intervening variable in the relationship between inequality and redistribution.
- These results also do not address the question of how the preferences of middle-income voters translate into policy outcomes.
Middle-income Preferences
- In keeping with their theoretical framework, the data presented in Figures 2 and 3 are restricted to survey respondents in the middle third of the distribution of household income (based on self-reported income).
- 26 In using this measure, the authors follow Goodrich and Rehm (2008), who convincingly show that creating a summary measure of support for redistribution by assigning numerical scores to categorical responses and averaging these scores on a national basis is problematic.
- Thus conceived, American exceptionalism poses less of a challenge to their theoretical framework than Swiss or Spanish exceptionalism because it is clearly attributable to the high concentration of racial-ethnic minorities in the bottom of the income distribution (cf. Alesina and Glaeser 2004; Gilens 2000).
- Evidence that the preferences of middle-income voters represent an important link in the causal chain from the structure of inequality to redistributive policy outcomes.
CONCLUSION
- Comparative studies of the political economy of redistribution have largely overlooked the effects of the structure of inequality.
- Quite reasonably, these authors interpret their results to mean that eligibility for means-tested social spending increases with the 50–10 ratio and that the political influence of the affluent increases with the 90–50 ratio.
- The authors preliminary analysis of survey data suggests that the structure of inequality shapes the preferences of middle-income voters and that these preferences in turn impact government policy.
- Quite legitimately, macrocomparative analyses of the type presented here invite questions about endogeneity.
- Technology constitutes another potential source of variation in the structure of earnings inequality.
Did you find this useful? Give us your feedback
Citations
433 citations
178 citations
165 citations
154 citations
References
28,298 citations
15,738 citations
8,872 citations
"The Structure of Inequality and the..." refers background in this paper
...Positing that social identities are defined by selfcategorization into groups and that there are multiple groups with which any given individual might identify (see Turner et al. 1987), Shayo (2009) argues that individuals choose to identify with one or another group—say, their class or their nation—based on (1) perceived social distance to the prototypical member of each group, and (2) the relative status of the group in question....
[...]
...…identities are defined by selfcategorization into groups and that there are multiple groups with which any given individual might identify (see Turner et al. 1987), Shayo (2009) argues that individuals choose to identify with one or another group—say, their class or their nation—based on (1)…...
[...]
6,652 citations
"The Structure of Inequality and the..." refers methods in this paper
...We used an augmented Dickey-Fuller test to look for a trending nonstationary process in our data (Maddala and Shaowen 1999)....
[...]
6,503 citations
"The Structure of Inequality and the..." refers background in this paper
...Given the number of observations per country in our data set, however, we cannot simultaneously include both the lagged dependent variable and country fixed effects (Nickell 1981)....
[...]
Related Papers (5)
Frequently Asked Questions (7)
Q2. What have the authors stated for future works in "The structure of inequality and the politics of redistribution" ?
One hypothesis to be explored in future work is that center-right parties adjust strategically to the advantages that center-left parties enjoy when the structure of inequality is skewed, pursuing more redistributive policies. Although the authors do not believe that governments are exclusively responsive to the policy preferences of middle-income voters, it seems reasonable to suppose that middle-income voters play a pivotal role in coalitional politics. Their preliminary analysis of survey data suggests that the structure of inequality shapes the preferences of middle-income voters and that these preferences in turn impact government policy. Further analysis of individual preferences constitutes an obvious next step that the authors intend to pursue.
Q3. In what countries did the OECD find the skew of earnings in the U.?
In several of these countries—notably, Australia, France, Ireland, and Switzerland—government policy appears to have become more redistributive relative to countries in which earnings skew has remained stable.
Q4. What is the likely explanation for the structure of earnings inequality?
As Piketty and Saez (2003) suggest, the rapid growth of corporate compensation, linked to the dynamics of equity markets, constitutes yet another possible factor behind changes in the structure of earnings inequality over the past two decades.
Q5. Does the addition of government partisanship affect the estimated effects of skew?
With redistribution as the dependent variable, introducing government partisanship into their models does not noticeably alter the estimated effects of skew.
Q6. What is the reason for the decline in relative income mobility?
A number of recent crossnational studies indicate that relative income mobility tends to decline with aggregate inequality (Aaberge et al.
Q7. What is the reason why middle-income voters empathize with the poor?
In particular, the authors expect middleincome voters to empathize with the poor (or affluent) to the extent that they live in the same neighborhoods, send their children to the same schools, and circulate within the same social networks (McPherson, SmithLovin, and Cook 2001).