Download - Gv4 d4.2.201314
POLITICS OF REDISTRIBUTION AND INEQUALITY
GV4D4 Jonathan Hopkin
Department of Government
LECTURE 2
INEQUALITIES AND REDISTRIBUTION IN THE ADVANCED ECONOMIES
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
Gini coefficients of income equality, OECD countries, mid-‐2000s
0.20
0.25
0.30
0.35
0.40
0.45
0.50
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.
• 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
Income levels by distribu@on deciles, OECD mid-‐2000 (US$, PPP)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
Income levels by distribu@on deciles, OECD mid-‐2000 (US$, 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
• 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)
• 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
• 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
• 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
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
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)
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.
• 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…
Le< -‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐Centre-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐Right
Downsian party compe@@on
• 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.
The problem is that income isn’t normally distributed…
• 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.
• 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’.
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
• 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
• 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.
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.
• 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)
• 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.
• 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.
• 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.
• 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)
• 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
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.
• 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.
• 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.
• 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?
• 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
• 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)
Turkeys vo@ng for Christmas?
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?
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?