Political Participation, Income Distribution, and Public Transfers in Developed Democracies

34 Pages Posted: 17 Jan 2008 Last revised: 25 Jan 2008

Date Written: June 11, 2001

Abstract

In the postwar era until recently, public-transfer shares of GDP have risen dramatically in every developed democracy. Much positive theory purports to explain this development as a direct consequence of differing distributions of political (votes) and economic (money) resources. This literature concludes, inter alia, that tax-and-transfer-system (T&T) sizes increase in the skew of the income distribution. This paper builds from that basis, suggesting theoretical additions and amendments deriving from further consideration of the democratic processes that transform resources into influence. It especially emphasizes that not everyone participates politically and that who participates is non-randomly selected. This implies that aggregate participation rates will mediate T&T responses to income inequality, and, conversely, that income inequality will mediate T&T responses to aggregate participation rates. Specifically, since the relatively wealthy have higher propensity to participate politically, higher aggregate participation rates will generally coincide with increased democratic representation of the relatively less well-off, suggesting that democratic governments will respond to greater inequality with larger T&T increases the higher the participation rate and, vice versa, higher participation induces larger T&T responses the more skewed the underlying income distribution. Regression analysis of the postwar T&T experiences of developed democracies support that hypothesis empirically.

Keywords: Redistribution, Inequality, Participation

JEL Classification: H11, H53, H55

Suggested Citation

Franzese, Robert J., Political Participation, Income Distribution, and Public Transfers in Developed Democracies (June 11, 2001). Available at SSRN: https://ssrn.com/abstract=1084132 or http://dx.doi.org/10.2139/ssrn.1084132

Robert J. Franzese (Contact Author)

University of Michigan ( email )

Ann Arbor, MI 48109
United States
734-936-1850 (Phone)
734-764-3341 (Fax)

HOME PAGE: http://www-personal.umich.edu/~franzese/

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