Inequality and redistribution in the rich democracies

1. POLITICS
OF
REDISTRIBUTION
AND
INEQUALITY
GV4D4
Jonathan
Hopkin
Department
of
Government

2. LECTURE
2
INEQUALITIES
AND
REDISTRIBUTION
IN
THE
ADVANCED
ECONOMIES

3. MEASURING
EQUALITY
AND
INEQUALITY
• How
do
we
know
how
equally
income
is
distributed
in
a
society?
• Lots
of
data
available.
Growth
in
rigorous
data
collec@on,
esp.
for
advanced
countries,
over
last
30
years.
Sources:
official
tax
returns,
micro
surveys
of
household
income
and
assets
• Most
common
measure
of
inequality:
Gini
coefficient.
Higher
Gini
=
higher
inequality

5. Gini
coefficients
of
income
equality,
OECD
countries,
mid-­‐2000s
0.50
0.45
0.40
0.35
0.30
0.25
0.20

6. Gini
coefficients
of
income
equality,
OECD
countries,
mid-­‐2000s
Note:
Countries
are
ranked,
from
leO
to
right,
in
increasing
order
in
the
Gini
coefficient.
The
income
concept
used
is
that
of
disposable
household
income
in
cash,
adjusted
for
household
size
with
an
elas@city
of
0.5.
Source:
OECD
income
distribu@on
ques@onnaire.
h,p://dx.doi.org/10.1787/420515624534
Published
in
OECD,
Growing
Unequal,
2008.

7. • Gini
measures
overall
inequality
–
doesn’t
tell
us
everything
about
the
distribu@on
• Could
be
driven
by
differences
between
rich
and
middle
or
between
poor
and
middle
(though
usually
both)
• Other
measures
–
compare
ra@os
of
different
parts
of
income
distribu@on:
• Divide
distribu@on
into
por@ons
quin@les
(fiOhs),
deciles
(tenths),
percen@les
(hundredths)
etc
• Compare
averages
of
por@ons,
eg
90/10
ra@o,
90/50
ra@o

8. Income
levels
by
distribu@on
deciles,
OECD
mid-­‐2000
(US$,
PPP)
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0

9. Income
levels
by
distribu@on
deciles,
OECD
mid-­‐2000
(US$,
PPP)
• Note:
The
data
refer
to
equivalised
household
disposable
income
of
people
at
different
points
of
the
distribu@on.
For
each
country,
the
bar
starts
at
the
average
income
of
the
first
decile
and
ends
at
the
average
income
of
the
10th
decile.
The
figure
also
shows
the
mean
income
over
the
en@re
popula@on
(shown
as
a
diamond).
Income
data
for
each
country
are
adjusted
for
infla@on
(when
they
refer
to
a
year
different
from
2005)
and
then
converted
into
US
dollars
based
on
PPP
rates
for
actual
consump@on
in
2005.
This
exchange
rate
expresses
the
costs
of
a
standard
basket
of
consumer
goods
and
services
purchased
on
the
market
or
provided
for
free
(or
at
subsidised
rates)
by
the
public
sector
in
different
countries.
Countries
are
ranked,
from
leO
to
right,
in
increasing
order
of
mean
equivalised
income.
Source:
OECD
income
distribu@on
ques@onnaire
and
other
OECD
databases.
Published
in
OECD,
Growing
Unequal,
2008
h,p://dx.doi.org/10.1787/420721018310

10. • Other
issues
• Pre-­‐tax
and
post-­‐tax
income
inequality:
• Pre-­‐tax/pre-­‐fisc/’market’
income
=
measures
income
before
taxes
paid
and
government
payments
received
• Post-­‐tax/post-­‐fisc/disposable
inequality
–
measure
income
aOer
taxes
deducted
and
govt
payments
• Unit
of
analysis
–
individuals
or
households?
• Usually
households,
‘equivalized’
–
ie
recalculate
as
if
every
household
a
‘typical’
one
to
allow
comparison
• But
household
income
inequality
s@ll
affected
by
structure
of
households,
which
changes
over
@me
(eg
more
single
people,
more
dual
earners
etc)

12. • Why
does
inequality
vary?
• Why
should
we
care?
• Posi@ve
and
norma@ve
ques@ons.
Both
worth
answering
• Even
if
we
take
a
relaxed
view
of
inequality,
s@ll
interes@ng
to
ask
what
this
tells
us
about
how
capitalism
is
working,
and
whether
it
is
poli@cally
sustainable

13. • Many
influen@al
explana@ons
available
• Economists
tend
to
focus
on
globaliza@on
(capital/trade),
technological
change,
market
structures
• Poli@cal
scien@sts
and
sociologists
more
interested
in
how
poli@cal
and
social
ins@tu@ons
regulate
markets
and
redistribute
income
• The
‘poli@cs’
of
inequality

14. • What
do
we
mean
by
‘poli@cs’
• Poli@cal
par@es
and
poli@cal
ideas
• Pagerns
of
worker
and
employer
representa@on/
organiza@on
• Welfare
ins@tu@ons
and
tradi@ons
• Redistribu@ve
fiscal
policy
• Redistribu@ve
regula@on
• Macroeconomic
policy
ins@tu@ons

15. WHY
DO
REDISTRIBUTION
AND
EQUALITY
VARY
ACROSS
NATIONS?
Classic
explana@ons
for
rise
of
redistribu@on
•
•
•
•
•
Democracy
–
early/late
democra@zers
Strength
of
organized
labour
(trade
unions,
par@es)
Strength
of
(organized)
business
Economic
openness
(country
size)
War
and
its
variable
effects

16. WHY
DO
REDISTRIBUTION
AND
EQUALITY
VARY
ACROSS
NATIONS?
Varie@es
of
democracy:
• Cons@tu@ons
• Electoral
systems
• Cleavages:
religion
• Cleavages:
ethnic
frac@onaliza@on
• Idea@onal
varia@on
–
different
ideologies
stronger
in
different
countries
(Weber)

17. DEMOCRACY
AND
REDISTRIBUTION
•
Why
does
democracy
lead
to
redistribu@on?
Meltzer/Richard
model:
• Government
taxes
to
redistribute
• The
median
voter
has
below
average
income
• Builds
on
and
refines
famous
‘Downsian’
model
of
electoral
compe@@on.

18. • Downs
posits
a
two-­‐party
system
(already
a
contrivance,
outside
the
Anglo-­‐American
context)
• If
electorate
is
distributed
along
a
single
issue
dimension,
and
is
normally
distributed,
par@es
will
converge
in
a
bagle
for
the
‘median
voter’.
• A
normal
distribu@on,
with
the
x
axis
implying
a
leO-­‐right
scale,
would
look
like
this…

19. Le<
-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐Centre-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐Right
Downsian
party
compe@@on

20. • Most
voters
are
located
in
the
centre
of
the
distribu@on,
very
few
voters
are
located
at
the
‘extremes’
of
leO
and
right.
• Par@es
adopt
moderate
posi@ons
to
agract
the
median
voter,
which
will
deliver
a
majority.
• Poli@cs
inherently
balanced,
and
elec@ons
produce
representa@ve
government
(most
voters
are
located
close
to
the
median
voter).
• No
systema@c
bias
in
this
model.

21. The
problem
is
that
income
isn’t
normally
distributed…

22. • What
happens?
• The
median
voter
has
an
incen@ve
to
vote
for
redistribu@on,
which
will
make
her
beger
off.
• Democracy
will
produce
governments
focused
on
redistribu@ng
from
the
more
to
the
less
produc@ve.
• Constant
growth
of
the
state.

23. • Meltzer,
Allan
H.,
and
Scog
F.
Richard.
"Why
Government
Grows
(and
Grows)
in
a
Democracy."
• Government
growth
can
only
be
coherently
explained
in
terms
of
the
‘difference
between
the
distribu@on
of
votes
and
the
distribu@on
of
income’.

24. Market incomes distributed much more unequally than net incomes
Inequality (Gini coefficient) of market income and disposable (net) income
in the OECD area, working-age persons, late 2000s

25. • Does
this
always
happen?
Some
governments
redistribute
more
than
others;
redistribu@on
changes
over
@me
(recently
in
decline)
• In
spite
of
the
numerical
superiority
of
the
poor
majority,
capitalism
remains
intact,
and
huge
dispari@es
of
income
and
–
especially
–
wealth,
remain.
• Przeworski
and
Sprague,
Paper
Stones.
A
History
of
Electoral
Socialism

26. • In
fact,
redistribu@on
varies
across
democracies.
• What
kind
of
ins@tu@onal
dynamics
do
Meltzer/
Richard
ignore?
• Need
to
consider
ins@tu@ons
and
collec@ve
behaviour.

27. ELECTORAL
SYSTEMS
AND
REDISTRIBUTION
• In
a
democracy,
equal
votes
for
all
ci@zens.
But,
electoral
rules
determine
how
votes
translate
into
power
• Electoral
system
another
key
variable:
• ‘Majoritarian'
or
'plurality'
electoral
systems
-­‐
like
First
Past
the
Post
(FPTP)
in
Britain
• PR
=
‘propor@onal
representa@on’
–
systems
which
allocate
representa@on
in
propor@on
to
party
vote
share.

28. • In
majoritarian
systems,
‘winner
takes
all’
logic
–
no
incen@ve
to
share
power
with
weaker
groups.
• In
PR,
more
groups
have
a
say,
encourages
more
nego@a@on
(veto
power
for
many
groups)

29. • Many
scholars
have
argued
for
a
strong
effect
of
electoral
system
on
redistribu@on
• In
PR,
need
to
integrate
wider
variety
of
groups
into
decision-­‐making
encourages
sharing
of
proceeds
of
economic
ac@vity
• FPTP
(majoritarian)
rules
tend
to
over-­‐represent
some
par@es
and
under-­‐represent
others.

30. • In
PR,
small
par@es
able
to
win
seats
in
parliament,
large
par@es
denied
inflated
majori@es:
forced
to
seek
alliances
in
order
to
form
government
coali@ons.
• This
means
all
groups,
not
just
the
poor,
able
to
demand
favourable
policies.
• In
FPTP,
par@es
can
govern
with
less
than
majority
vote
share.

31. • PR
-­‐
a
more
inclusive
system
–
benefits
most
vulnerable
social
groups,
•
They
are
least
able
to
defend
their
interests
in
more
compe@@ve
ins@tu@onal
environments.
• More
representa@on
more
‘democra@c’?
Allows
all
groups
to
demand
their
share.

32. • If
people
more
represented,
democracy
effects
iden@fied
by
Meltzer/Richard
more
powerful?
• Ul@mately
depends
on
ability
of
median
voter
to
mobilize
majority
support
for
redistribu@on.
• Empirically,
clear
correla@on:
Welfare
states
stronger
in
PR
democracies
(Stephens,
Swank)

33. • In
UK,
US,
Canada,
NZ
(-­‐>
1990s)
and
Australia,
majoritarian
electoral
rules
associated
with
hardline
neoliberalism
(eg
Thatcher,
Reagan).
• In
con@nental
Europe,
home
of
the
'social
market
economy',
PR
is
the
norm.
• But,
some
excep@ons
-­‐
Ireland
has
PR
and
ligle
redistribu@on,
France
has
a
two-­‐round
majoritarian
system
and
extensive
welfare

35. EXPLAINING
REDISTRIBUTION?
• Does
the
electoral
system
really
explain
these
effects?
• Lots
of
other
things
going
on:
mul@collinearity
of
relevant
variables
makes
understanding
causality
difficult.

36. • Endogeneity:
electoral
system
may
be
a
result
of
redistribu@on
• Spurious
correla@on:
electoral
system
and
redistribu@on
may
be
both
caused
by
a
third
variables.
• Not
just
rules,
but
social,
cultural,
historical
factors.

37. • In
any
case,
empirically
and
historically
electoral
systems
are
part
of
a
broader
collec@on
of
ins@tu@ons
pushing
poli@cal
systems
in
a
par@cular
direc@on.
• Majoritarian
ins@tu@ons
concentrate
power
around
the
representa@ves
of
the
most
powerful
groups,
while
consensus
ins@tu@ons
disperse
it,
allowing
minori@es
the
chance
to
influence,
or
even
veto,
policy
decisions.

38. • USA
a
test
case:
• Consensus
democracy
in
some
respects:
federalism,
bicameralism,
cons@tu@onalism,
separa@on
of
powers
• But,
majoritarian
in
others:
FPTP
electoral
system.
• Which
makes
the
difference?

39. • Redistribu@ve
poli@cs
not
only
about
poor
seeking
redistribu@on
from
rich
–
also
movement
in
opposite
direc@on
• Lobbying,
corrup@on,
campaign
finance
• Market
regula@on
can
redistribute
from
consumers
to
producers
–
protec@onism
• Inequality
of
access
to
electoral
resources

40. • How
capable
are
voters
of
assessing
the
effects
of
policy?
• Powerful
corporate
interests
can
buy
propaganda;
demobilized
voters
are
‘cogni@ve
misers’
–
no
incen@ve
to
gather
informa@on
• Well
financed
campaigns
can
overturn
redistribu@ve
dynamics
of
elec@ons
• Voters’
weak
understanding
of
policy
(Bartels)

41. Turkeys
vo@ng
for
Christmas?

42. CONCLUSIONS
• So,
basic
models
of
electoral
models
predict
amount
of
redistribu@on
and
inequality
• Refinements
of
models
needed
to
capture
real
varia@ons
between
countries
• Electoral
systems
and
party
systems
‘endogenous’
to
other
variables
that
may
be
causally
‘prior’
• Other
ins@tu@ons
-­‐
history,
culture,
religion?

43. Core
ques@ons:
Why
study
inequality?
How
should
we
measure
inequality?
Why
do
democracies
redistribute
more?
Why
do
some
democracies
redistribute
more
than
others?
What
does
rising
inequality
tell
us
about
the
way
democracy
works?