Income Distribution and Social Expenditures: A Cross-National Perspective

Abstract:     
We assemble data from several different sources to examine the cross-national effects of inequality and trust on social expenditures. We find that the inequality between the middle classes and the poor (as measured by the 50/10 percentile ratio) has a small, positive impact but inequality between the ends of the distribution and middle class (measured by the 90/50 percentile ratio) has a large and negative impact on social spending. Different measures of trust are shown to have a large and positive impact on spending, implying that more cohesive, trusting societies are more willing to share economic resources with others not so fortunate. Our results therefore suggest that as the "rich" become more distant from the middle and lower classes, they find it easier to opt out of public programs and to buy substitutes in the private market. This implies that over time rising inequality will erode support for social institutions and social support that provides insurance against income loss, upward mobility and equal opportunity.

Number of Pages in PDF File: 61

working papers series