Macroeconomic Policy, Redistribution and Democracy

42 Pages Posted: 29 Aug 2013 Last revised: 27 Dec 2013

Michael Albertus

University of Chicago - Department of Political Science

Victor A. Menaldo

University of Washington - Department of Political Science

Date Written: August 29, 2013

Abstract

A growing literature concludes that modern democracies have not adopted policies that benefit the majority to the extent predicted by social conflict theory. The most prominent reason is that globalization ties the hands of policymakers, making it hard for them to redistribute. Yet while progressive taxation has declined, we find that redistributive spending is higher in many democracies than would be expected by today's high levels of capital mobility. We also find that democratic countries that tend to appeal to the majority of the population, which we proxy for with the adoption of their own constitution after transition, use redistributive macroeconomic policies as an endrun around fiscal constraints. While popular democracies adopt flexible exchange rates that give them monetary autonomy, exhibit higher levels of inflationary finance, and incur more foreign debt, elite-biased democracies are more restrained. The latter also have smaller governments and engage in lower levels of redistributive spending.

Keywords: Democracy, Redistribution, Globalization

Suggested Citation

Albertus, Michael and Menaldo, Victor A., Macroeconomic Policy, Redistribution and Democracy (August 29, 2013). Available at SSRN: https://ssrn.com/abstract=2317662 or http://dx.doi.org/10.2139/ssrn.2317662

Michael Albertus

University of Chicago - Department of Political Science ( email )

Chicago, IL 60637
United States

Victor A. Menaldo (Contact Author)

University of Washington - Department of Political Science ( email )

101 Gowen Hall
Box 353530
Seattle, WA 98195
United States

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