The Externalities of Inequality: Fear of Crime and Preferences for Redistribution in Western Europe

Why is the difference in redistribution preferences between the rich and the poor high in some countries and low in others? In this article, we argue that it has a lot to do with the rich and very little to do with the poor. We contend that while there is a general relative income effect on redistribution preferences, the preferences of the rich are highly dependent on the macrolevel of inequality. The reason for this effect is not related to immediate tax and transfer considerations but to a negative externality of inequality: crime. We will show that the rich in more unequal regions in Western Europe are more supportive of redistribution than the rich in more equal regions because of their concern with crime. In making these distinctions between the poor and the rich, the arguments in this article challenge some influential approaches to the politics of inequality.     

Imperfect information and the Meltzer-Richard hypothesis

Standard majority-voting models predict that redistribution is positively linked to the mean-to-median income ratio but empirical evidence is mixed. This paper shows that the different empirical reactions to rising mean-to-median income ratios can be rationalized in a simple Romer-Roberts-Meltzer-Richard framework with imperfect information. In such a model, it is important to consider the source of rising mean-to-median ratios. Income growth of the poor can lead to less redistribution as more agents perceive themselves to be rich, which tends to reduce the support for redistribution. An empirical application reveals that the model can explain a substantial part of the first Reagan tax cut.     

Inequality, the politics of redistribution and the tax mix

Political economy literature generally predicts a positive relationship between income inequality and redistribution. However, there is no clear empirical evidence supporting such a relationship. By incorporating an informal sector that evades income taxes, we account for the tax-base effect that, along with the political channel, determines the equilibrium redistribution and tax mix. We find a non-monotonic relationship between inequality and redistribution and explore under which conditions an unequal society relies more heavily on indirect taxes to finance redistribution. Ultimately, this paper shows the limitations of the income tax to finance redistribution in developing countries even when taxes are democratically chosen.     

When Do the Rich Vote Less Than the Poor and Why? Explaining Turnout Inequality across the World

The conventional wisdom that the poor are less likely to vote than the rich is based upon research on voting behavior in advanced industrialized countries. However, in some places, the relationship between turnout and socioeconomic status is reversed. We argue that the potential tax exposure of the rich explains the positive relationship between income and voting in some places and not others. Where the rich anticipate taxation, they have a greater incentive to participate in politics, and politicians are more likely to use fiscal policy to gain support. We explore two factors affecting the tax exposure of the rich—the political salience of redistribution in party politics and the state's extractive capacity. Using survey data from developed and developing countries, we demonstrate that the rich turn out to vote at higher rates when the political preferences of the rich and poor diverge and where bureaucratic capacity is high.     

Income Inequality and Demand for Redistribution: A Multilevel Analysis of European Public Opinion

This article employs multilevel modeling to assess the importance of income inequality on the demand for redistribution in a sample of 22 European countries. According to standard political economy models of redistribution – notably the Meltzer-Richard model – inequality and demand for redistribution should be positively linked. However, existing empirical research has disputed this claim. The main advantages of this article is that demand for redistribution is measured at the individual level, and that the relevant interaction between inequality and own income is considered. The main findings are that inequality is positively associated with demand for redistribution, and that the median income person is sensitive to the level of inequality. These findings are robust to the inclusion of a range of relevant control variables. The results are relevant in relation to the increase in inequalities in many European countries, and especially relevant to the current debate about the importance of directly observable differences in public preferences for social policy outcomes.     

How much income redistribution? An?explanation based on?vote-buying and?corruption

This paper studies how income tax rates are determined and how they are related to government corruption in the form of fund capture. A?model is presented where rich voters can block redistribution by buying the votes of some poor voters. In equilibrium there is only limited redistribution and income tax rates are a negative function of government corruption. When rich voters can bribe the government, an additional equilibrium with zero taxation is possible. The link between corruption and tax rates is tested using cross country data; the empirical evidence is fully consistent with the predictions of the model.     

Health insurance in a democracy: Why is it public and why are premiums income related?

Many democracies have public health insurance systems which combine redistribution from the rich to the poor and from the healthy to the sick. This paper shows that such systems can be in the interest of the poor and the rich from a constitutional perspective. Necessary conditions are that insurance markets are incomplete and that income inequality is neither too low nor too high. Then even the rich can prefer a public health insurance system financed by income-dependent contributions compared to a system financed by a flat fee or a private health insurance system.     

Divided by the Market,Divided by the State: Distribution,Redistribution and Welfare Attitudes in 47 Countries

This article examines the impact of income inequality and welfare state context on the extent to which the rich and poor share similar attitudes towards redistribution. It asks whether and how differences in attitudes, particularly those between income groups, are shaped by inequality and redistributive efforts. Based on a multi‐level analysis of individual survey data across 47 countries at three points in time, the article shows that such an interaction of individual characteristics and the macro‐context indeed matters considerably. While material self‐interest, unsurprisingly, explains part of the individual differences, the analysis also shows, for the first time, that both high inequality and strongly redistributive policies divide public opinion along the lines of socioeconomic position. Put differently, while market inequality may be associated with less cohesive attitudes, a highly redistributive welfare state does not seem to foster agreement among the public, either. These findings have important policy implications for advanced welfare states, including a renewed emphasis on ‘predistribution’ (i.e., policies that influence the primary distribution of income) in order to avoid the scenario of intensified redistributive conflicts.     

Immigration,redistribution, and universal suffrage

The effect of immigration on redistribution has been widely debated. This paper contributes to this debate by testing two explanations, which are that (i) immigration tends to reduce redistribution due to people’s higher levels of xenophobia, and that (ii) immigration affects redistribution because immigrants do not have the right to vote. Since the demand for redistribution depends on the (expected) gap between median voter income and mean income, immigrants affect the demand for redistribution because, as non-citizens, they do not change the median voter’s income, but, as economic stakeholders, they do affect the mean income. Four empirical consequences of (i) and (ii) are tested at the individual level. Evidence from the European Values Survey in 45 countries confirms (ii), showing that immigrants’ expected competitiveness on the labor market affects preferences for redistribution and that it is amplified when the perceived number of immigrants is high. In contrast, (i) is globally rejected since the impact of the citizens’ declared level of solidarity with immigrants tends to be weak and depends on the type of measurement or specification used.     

Democracy and the demand for government redistribution: A survey analysis

This article uses survey data to study the impact of democracy on the demand by poor citizens for government redistribution. Taking the well‐known Meltzer‐Richard theory as the point of departure, three arguments are presented as to why such a demand should be stronger in democracies than in autocracies: in democracies low‐income groups are: (1) exposed to elections that can make a policy difference: (2) better informed about the income distribution; and (3) better equipped to process such information. The argument receives empirical support in a Bayesian multilevel analysis which combines 188 World Values Surveys with cross‐sectional and longitudinal macro data from 80 countries.     

Digital Politics in Western Democracies: A Comparative Study

Satisfaction with democracy is driven by the two mechanisms that affect citizens’ income: the market and the state. When people consider that the levels of economic growth and redistribution are sufficient, they are more satisfied with the performance of democratic institutions. This relationship is moderated by personal income: since low-income citizens are more sensitive to changes in personal economic circumstances than high-income citizens, they give more weight to economic perceptions and opinions about redistribution. In this paper evidence is found of this conditional relationship in survey data from 16 established democracies. The results offer a rich characterisation of the state and market-based mechanisms that affect satisfaction with democracy.     

Inequality and the Dynamics of Public Opinion: The Self‐Reinforcing Link Between Economic Inequality and Mass Preferences

This article assesses the influence of income inequality on the public's policy mood. Recent work has produced divergent perspectives on the relationship between inequality, public opinion, and government redistribution. One group of scholars suggests that unequal representation of different income groups reproduces inequality as politicians respond to the preferences of the rich. Another group of scholars pays relatively little attention to distributional outcomes but shows that government is generally just as responsive to the poor as to the rich. Utilizing theoretical insights from comparative political economy and time‐series data from 1952 to 2006, supplemented with cross‐sectional analysis where appropriate, we show that economic inequality is, in fact, self‐reinforcing, but that this is fully consistent with the idea that government tends to respond equally to rich and poor in its policy enactments.     

The Characteristics of Countries with Generational Account Imbalances

This article empirically tests competing explanations for intergenerational policy differences using a cross section of generational accounts from Kotlikoff and Leibfritz (1999). Generational imbalance rises when a public transfer program is created that benefits living generations and harms future generations. Generational imbalance is greatest in countries with a large elderly population, high income growth rate, greater income inequality, and dispersed political parties. The results are consistent with successful rent seeking by the elderly and poor, and suggest that countries with a high income growth rate and coalition government are less able to resist intergenerational redistribution.     

Voting over Redistribution and the Size of the Welfare State: The Role of Turnout

Theories of redistribution inspired by the Downsian model receive little support from empirical investigation. In this article I argue that one of the possible explanations is that the standard Downsian theory, and the empirical specifications derived from it, ignore electoral turnout. Empirical evidence consistently shows that higher-income citizens are more likely to vote; office-seeking candidates should therefore include this probability in their objective function. As a consequence, the pivotal voter is not the median in the income distribution, but is generally richer. Moreover, an increase in income inequality does not unambiguously increase the political demand for redistribution, as most literature takes for granted. Including turnout in the model restores the compatibility of the Downsian theory with current empirical evidence. A regression analysis on panel data for 41 countries in the period 1972–98 confirms the importance of turnout as an explanatory variable for social spending.     

The political economy of targeting

One of the most widely used method of targeting is to reduce welfare benefits as income rises. Although the need for such targeting is clear enough, it also entails two important difficulties. Firstly, the prospect for the recipients of losing part of their benefits if they were to earn more can be a deterrent to work harder. Secondly, by reducing the number of recipients, targeting reduces the political support for taxation and redistribution. The purpose of this paper is to study the voting equilibrium of the degree of targeting and the level of taxation in an economy where labour supply is variable. The analysis reveals that targeting may be fatal for redistribution even though it rejects strictly less than the richest half of the population, and that it is not possible for a coalition of the extremes to form and reject the middle income group from the welfare system. Moreover, because targeting affects labour supply, we find that Pareto improvements are possible when targeting is either “too low” or “too high”. We also find that voting simultaneously over taxation and targeting is favourable to the poor in the sense that they can converge to their most-preferred policy by successively forming a majority coalition with the rich to increase targeting and with the middle to increase taxation.     

The regulatory state in developing countries: Redistribution and regulatory failure in Brazil

Following the traditional doctrine of the “regulatory state”, regulatory agencies should be given very focused mandates and stay away from the politicized realm of distributive policies and decisions. An opposing perspective would state that if regulatory agencies can contribute to economic redistribution, positive results such as network expansion, economies of scale, and fiscal efficiency will ultimately lead to lower levels of regulatory failure. This article tests whether, in countries of high socio-economic inequality, such as Brazil, the active incorporation of distributive considerations by regulatory agencies leads to lower levels of failure. Through the analysis of the activities of seven Brazilian network regulatory agencies, the article develops theory-driven expectations and tests these expectations using crisp set Qualitative Comparative Analysis (csQCA). It concludes that not prioritizing redistribution is a necessary but not a sufficient condition for regulatory agencies' failure. In most types of failure, a lack of priority to redistribution leads to failure when combined with low regulatory capacity and low levels of competence.     

Britain's Wages Crisis—Is ‘Predistribution’ or ‘Redistribution’ the Way Forward?

Is ‘predistribution’ as championed by Ed Miliband, or old fashioned ‘redistribution’ as adopted, if stealthily, by Labour from 1997, the best way to create greater equality? Some critics have argued that a strategy of predistribution—aimed at closing the income gap before the application of taxes and benefits—would not work and that it will be necessary to rely mainly on redistribution. This article examines the potential impact of weak and more radical predistribution‐style measures on one of the key drivers of inequality—‘wage compression’. It examines the potential of a mix of policies for raising the wage floor. It argues that reliance on traditional redistribution would face its own set of constraints and that creating a more equal distribution of the cake, before taxes and benefits, is a necessary condition for lowering the risk of continuing economic crisis.     

Voting over taxes: the case of tax evasion

This paper studies majority voting on taxes when tax evasion is possible. We characterize the voting equilibrium where the agent with median taxed income is pivotal. Since the ranking of true incomes does not necessarily correspond to the ranking of taxed incomes, the decisive voter can differ from the median income receiver. In this case, we find unconventional patterns of redistribution, e.g., from the middle class to the poor and the rich.     

A policy to promote the world's economic development with migration

This paper proposes a scheme of large-scale migration from poor countries to rich ones to speed up economic development and raise the world's economic level. The key behavioral mechanism is non-school learning; as the migrants and their children take on the culture of the rich country, they acquire the skills and attitudes necessary for modern industrial production. Rich nations will not voluntarily open their borders to such immigration. A change in the international system is therefore suggested, giving power of taxation to an international body. This body would then hold an auction among the rich countries for immigration contracts. Though the present international system makes no provision for such policies, it makes sense to discuss and analyse the policies now, to be ready for possible future changes and perhaps to help stimulate changes in the international level.     

Political institutions and income (re-)distribution: evidence from developed economies

We discuss the effect of formal political institutions (electoral systems, fiscal decentralization, presidential and parliamentary regimes) on the extent and direction of income (re-)distribution. Empirical evidence is presented for a large sample of 70 economies and a panel of 13 OECD countries between 1981 and 1998. The evidence indicates that presidential regimes are associated with a less equal distribution of disposable incomes, while electoral systems have no significant effects. Fiscal competition is associated with less income redistribution and a less equal distribution of disposable incomes, but also with a more equal primary income distribution. Our evidence also is in line with earlier empirical contributions that find a positive relationship between trade openness and equality in primary and disposable incomes, as well as the overall redistributive effort.