Why Hasn’t Democracy Slowed Rising Inequality?
Journal of Economic Perspectives Volume 27, Number 3, Summer 2013, Pages 103-124
22 Pages Posted: 14 May 2019
Date Written: 2013
During the past two generations, democratic forms have coexisted with massive increases in economic inequality in the United States and many other advanced democracies. Moreover, these new inequalities have primarily benefited the top 1 percent and even the top .01 percent. These groups seem sufficiently small that economic inequality could be held in check by political equality in the form of “one person, one vote.” Indeed, the notion that inequality should be at least partially self-correcting in a democracy has a long pedigree in economic theory. In the canonical model of Meltzer and Richard (1981), increased inequality (in the form of median incomes falling relative to average incomes) leads the median voter to demand more redistribution, so that politics should limit after-tax and -transfer inequality. Redistribution is limited, however, by the consequences of how the higher rates of taxation reduce labor supply. A stripped-down version of this model, with similar implications, is the model developed by Bolton and Roland (1999), where redistribution is limited through deadweight loss in taxation. These early approaches (see also Romer 1975) assume that politics is majoritarian, equal (one person, one vote) and with full participation (all economic agents vote).
Keywords: democracy, inequality
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