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Redistribution in a Divided Society
Abstract
We investigate how continental European unemployment can be reduced without reducing unemployment benefits and without reducing the net income of low-wage earners. Lower unemployment replacement rates reduce unemployment, the net wage, and unemployment benefits. A lower tax on labor increases net wages and unemployment benefits. Combining these two policies allows one to reduce unemployment without reducing the net income of workers or of the unemployed. Such a policy becomes self-financing under realistic parameter constellations when taxes are reduced only for low-income workers.
... 6 Closely related is Fernandez and Levy (2008) which address a complementary question as they study the effect of changing the number 4 One notable exception is Roemer (1998). 5 Austen-Smith and Wallerstein (2006) and Lee and Roemer (2006) provide related models. See also Besley and Coate (2000). ...
... Our approach is tailored to the empirical context where we observe variations in the size, rather than in the number, of the minority groups. 7 Finally, our political parties model relies on Levy (2004) which applies the stability concept used in Ray and Vohra (1997) to determine which endogenous parties arise. A key element in this model is that the utility of a coalition member depends not only on the coalition he belongs to, but also on the array and composition of other parties/coalitions, as they too take part in the political process. ...
... Specifically, we assume that the Poor (P ) gain utility from the provision of some general 7 See also Levy (2005). public good g (which could be thought of as health, education, infrastructure, or a combination of all) and thus maximize some u P (g). ...
This paper analyzes whether political outcomes in local democracies are determined by the preferences of the median -typically poor- agents or whether they reflect the wishes of the wealthy elites. A model shows that when politicians belonging to different groups can form coalitions, the wealthy elites’ influence on policy choices is endogenously higher when there is diversity in preferences among the poor. In line with the theoretical predictions, the pattern of public good provision by local governments in Indonesia reveals that when individuals have different preferences —here due to different ethnicities— democratic policy outcomes are closer to the preferences of the elites, rather than the preferences of the poor majority.
... The two extreme cases are of particular interest. When λ H ∈ [1,3]; all the workers have an outside option equal to their marginal productivity, and the union cannot enhance social welfare through redistribution. When λ H ∈ [1,3], all workers' outside option is null. ...
... When λ H ∈ [1,3]; all the workers have an outside option equal to their marginal productivity, and the union cannot enhance social welfare through redistribution. When λ H ∈ [1,3], all workers' outside option is null. This case has been extensively discussed earlier. ...
The paper proposes a theoretical framework to analyze the contribu- tion of the trade unions in the compensation schemes. The tendencies, ob- served in unionized sectors, towards compression of wages and towards an earning profile increasing with seniority are set into an equilibrium model. The driving force leading the unions to pursue the aforementioned wage structure is examined, and the three hypotheses of union benevolent with respect to all workers, benevolent with respect to its members, and ruled by the median worker are tested in various contexts that differ according to the outside option that the workers face. Some implications are then derived, regarding the redistribution operated by the union within a co- hort and in favor of senior workers, and the effects of unions on productive efficiency and unemployment level1.
... Moreover, affirmative action has become an instrument of redistributive policy and, as argued by Austen-Smith and Wallerstein (2003), the additional instrument, even in the absence of racism, might lead to less redistribution. Rather than explore the complexities of policy determination, however, we want to remain within the standard political economy framework of the median voter. ...
Abstract, June. 2005. Non-citizens quadrupled as a percentage of the voting age population in the United States between 1972 and 2002. During the same period, the non-citizen population went from being reasonably well to do tobeing disproportionately poor.These changes have had important consequences,from the perspective of the basic politicaleconomy,model where inequality is reduced through redistribution that depends on the ratio of median voter income to mean income. This ratio has remained largely unchanged,despite the large increase in inequality in the United States. We decompose,the impact of non-citizens in two effects: a “sharing” effect and a “disenfranchisement” effect. Disenfranchisem ent implies that the median voter is wealthier than the median family. Sharing implies that the median voter turns against redistribution because poor non-citizens reduce what the median voter can gain from redistribution. Our analysis is based on analysis of the biennial November Current Population Survey. We report two additional findings. First, citizen turnout has not become increasingly stratified by income. Thus, the median voter has not become richer because of apathy among poor citizens. Second, there is a midterm,cycle in voter turnoutwhere,relatively well-to-do non-voters in midterm years turnout in presidential years. * For presentation at the Annual Meeting of the Society for the Advancement,of Socio- Economics, “What Counts? Calculation, Representation, Association,” Budapest, Hungary, June 30-July 2, 2005. An earlier version was presented atthe Post-Industrial Working Group meeting at Yale University, Jan. 29-30, 2005 and at the Eric Mindich “Encounters with Authors” symposium at Harvard University, Jan. 20-23, 2005.* The views in this paper are those of the authors only and imply no endorsement,by RAND or NYU. Authors’ affiliations are for solely for purposes of identification. We thank Nolan McCarty for the lognormal estimates of the income distributions. We thank participants
... A related work is Austen-Smith and Wallerstein (2003), who present a model of joint determination of redistribution and scope of affirmative action. They show that in divided societies, support for welfare spending is lower than in non-divided societies. ...
I study the effect of voters with a group-based social conscience. Voters care more about the well-being of those belonging to their own group than the rest of the population. Within a model of political tax determination, both fractionalization and group antagonism reduce the support for redistribution. Whereas within group inequality increases support for redistribution, inequality between groups has the opposite effect. These results hold even if a poor group forms a majority. Using a panel constructed from US micro data, I find support for the hypothesis that within race inequality increases redistribution while between race inequality decreases redistribution.
... For results on the US, see Roemer and Lee (2004); for results on Denmark, see Roemer and Van der Straeten (2004a). This project is part of the emerging literature linking distribution to racial or immigration issues, see, for example, Alesina et al. (2001), Austen-Smith and Wallerstein (2003), and Ortega (2004a; 2004b). Before turning to a description of our data and of the major political issues in the campaigns, we briefly present below the various political parties competing in the presidential elections, together with their vote shares. ...
Anti-immigrant feeling (xenophobia) among voters was a key factor in the second-place victory of Jean Le Pen's National Front
Party in the 2002 French national election. Here, we study the effect of anti-immigrant sentiment on the equilibrium position
of political parties on the economic issue, which we take to be the size of the public sector. We model political competition
among three parties (Left, Right, and Extreme Right) on a two-dimensional policy space (public sector size, immigration issue)
using the PUNE model. We calibrate the model to French data for the election years 1988 and 2002, and show that politics have
changed significantly over this period, from being centered primarily on economic issues, to non-economic issues such as immigration
and security/law-and-order. We estimate that in 2002, the effect of voter xenophobia was to reduce the voters' choice of public-sector
size between 11% and 28% of one standard deviation of the population's distribution of public-sector size ideal points, from
what it would have been, absent xenophobia.
... For results on the US, see Roemer and Lee (2004); for results on Denmark, see Roemer and Van der Straeten (2004). This project is part of the emerging literature linking distribution to racial or immigration issues, see for example Alesina et al. (2001), Austen-Smith and Wallerstein (2003) or Ortega (2004aOrtega ( , 2004b. ...
Nous nous proposons d'étudier l'impact que le sentiment anti-immigrés de certains électeurs est susceptible d'avoir sur les propositions que font les partis en matière de politique économique. Nous modélisons la compétition électorale comme ayant lieu entre trois partis (la Gauche, la Droite et l'Extrême-Droite) et portant essentiellement sur deux dimensions (la taille du secteur public et l'immigration). Nous " calibrons " le modèle en utilisant des données d'enquêtes menées durant les années d'élections présidentielles 1988 et 2002, et montrons que l'influence des questions liées à l'immigration sur la taille du secteur public est loin d'être négligeable.
... For results on the US, see Roemer and Lee (2004); for results on Denmark, see Roemer and Van der Straeten (2004). This project is part of the emerging literature linking distribution to racial or immigration issues, see for example Alesina et al. (2001), Austen-Smith and Wallerstein (2003) or Ortega (2004a, 2004b). ...
Anti-immigrant feeling (xenophobia) among voters has been proposed as a key factor explaining why, in the 2002 French national election, Jean Le Pen’s National Front Party won second place. Here, we study the effect of anti-immigrant sentiments among voters on the equilibrium position of political parties on the economic issue, which we take to be the size of the public sector. We model political competition among three parties (Left, Right, and Extreme Right) on a two-dimensional policy space (public sector size, immigration issue) using the PUNE model. We calibrate the model to French data for the election years 1988 and 2002, and show that politics have changed significantly over this period, from being centered primarily on economic issues to being centered on non-economic issues such as the immigration and security/law and order. We estimate that in 2002, the effect of voter xenophobia was to reduce the voters’ choice of public-sector size between 7% and 51% of one standard deviation of the population’s distribution of public-sector size ideal points, from what it would have been, absent xenophobia.
The Oxford Handbook of Political Economy surveys the field of political economy. Over its long lifetime, political economy has had many different meanings: the science of managing the resources of a nation so as to provide wealth to its inhabitants for Adam Smith; the study of how the ownership of the means of production influenced historical processes for Marx; the study of the inter-relationship between economics and politics for some twentieth-century commentators; and for others, a methodology emphasizing individual rationality (the economic or public choice approach) or institutional adaptation (the sociological version). This Handbook views political economy as a grand (if imperfect) synthesis of these various strands, treating political economy as the methodology of economics applied to the analysis of political behaviour and institutions. The fifty-eight articles range from micro to macro, national to international, institutional to behavioural, methodological to substantive. Articles on social choice, constitutional theory, and public economics are set alongside ones on voters, parties and pressure groups, macroeconomics and politics, capitalism and democracy, and international political economy and international conflict.
In this paper we present a theory on the political economics of higher education. We show that in a model where heterogeneous and income maximizing agents simultaneously vote on higher education subsidies and general redistributive policies, higher education subsidies will always receive majority support even if they are targeted only to a small minority. Building on a model of legislative bargaining we determine the equi- librium outcomes for educational subsidies and demonstrate that the degree of subsidization chosen in the political equilibrium will decrease over time as private wealth holdings increase in the economy. Last, we use a large panel data set based on Worldbank data to provide empirical evidence for the theory presented and demonstrate that the implications of our model are largely confirmed by the data.
Existing literature on the effects of ethnolinguistic fragmentation on the poor comes to almost universally negative conclusions. Fragmentation is viewed as dividing society in such a way as to reduce economic growth and increase inequality, both of which harm the poor. However, surprisingly little attention has been paid to the economic effect of fragmentation in the context of different political institutions. Using cross-sectional time-series analysis of 54 countries, I examine the effect of ethnolinguistic fragmentation in the context of different electoral institutions, which have been hypothesized by many scholars to have the ability to reduce ethnic tensions. I find that proportional representation systems are able to offset the negative effects of ethnolinguistic fragmentation on the poor. The results are robust to different statistical techniques and measures of the main explanatory variables. Acknowledgments: This paper builds on previous work with Lorena Becerra, with whom I wrote an earlier version of the paper. I have benefited a great deal from discussions with her, and the current version simply would not exist without our previous work together. Previous versions of this paper were presented at the conference on "The Economic Consequences of Political Institutions" at Duke University, the UNC-Duke Working Group on Poverty and Inequality in Latin America, and the Workshop on Democracy and Poverty at Duke University. I am grateful to the participants of those events for comments, and particularly to Marcela González Rivas, Herbert Kitschelt, Sanjay Reddy, Karen Remmer, and Michael Ross. All errors are my own.
The welfare state is generally viewed as either providing redistribution from rich to poor or as providing publicly financed insurance. Both views are incomplete. Welfare policies provide both insurance and redistribution in varying amounts, depending on the design of the policy. The authors explore the political consequences of the mix of redistribution and insurance in the context of studying the impact of income inequality on expenditures in different categories of welfare spending in advanced industrial societies from 1980 to 1995. They find that spending on pensions, health care, family benefits, poverty alleviation and housing subsidies is largely uncorrelated with income inequality, but that spending on income replacement programs such as unemployment insurance, sickness pay, occupational illness and disability are significantly higher in countries with more egalitarian income distributions. They show that this pattern is exactly what a theory of political support for redistributive social insurance programs would predict.
We propose a theoretical framework and present empirical evidence to analyze how democracy aggregates preferences when these differ both within and across wealth classes. We show that when politicians belonging to different groups can form coali-tions, the wealthy elites' influence on policy choices endogenously increases with the diversity in preferences among the poor. In line with the theoretical predictions, the pattern of public good provision and income transfer policies by local governments in Indonesia reveals that when individuals have different preferences —here due to different ethnicity— democratic policy outcomes reflect the preferences of the elites and of the ethnic minority, rather than the preferences of the poor majority.
We analyse the question of optimal taxation in a dual economy, when the policy-maker is concerned about the distribution of labour income. Income inequality is caused by the presence of sunk capital investments, which creates a “good jobs” sector due to the capture of quasi-rents by trade unions. With strong unions and high planner preference for income equality, the optimal policy is a combination of investment subsidies and progressive income taxation. If unions are weaker, the policy-maker may instead choose to tax investment.
For the first time in some years, a conservative government came to power in Denmark in 2001, due primarily to the citizenry's disaffection with social-democratic policies on immigration. We represent political competition in Denmark as taking place over two issues—the size of the public sector and immigration—and model political equilibrium using the party unanimity Nash equilibrium (PUNE) concept, which generates equilibria on multi-dimensional policy spaces where parties form endogenously. By fitting the model to Danish data, we argue that citizen xenophobia may be expected to decrease the size of the Danish public sector by an amount between 12% and 36% of one standard deviation of the probability distribution of citizens' ideal points of the size of the public sector.
In this paper we analyze the interaction of income and preference heterogeneity in a political economy framework. We ask whether the presence of preference heterogeneity (arising, for example, from different ethnic groups or geographic locations) affects the ability of the poor to extract resources from the rich. We study the equilibrium of a game in which coalitions of individuals form parties, parties propose platforms, and all individuals vote, with the winning policy chosen by plurality. Political parties are restricted to offering platforms that are credible (in that they belong to the Pareto set of their members). The platforms specify the values of two policy tools: a general redistributive tax which is lump-sum rebated (or used to fund a general public good) and a series of taxes whose revenue is used to fund specific (targeted) goods tailored to particular preferences or localities.Our analysis demonstrates that taste conflict first dilutes but later reinforces class interests. When the degree of taste diversity is low, the equilibrium policy is characterized by some amount of general income redistribution and some targeted transfers. As taste diversity increases in society, the set of equilibrium policies becomes more and more tilted towards special interest groups and against general redistribution. As diversity increases further, however, the only policy that can emerge supports exclusively general redistribution.
Public provision of education is usually viewed as a form of redistribution in kind. However, does it arise when income redistribution
is feasible as well? I analyze a two-dimensional model of political decision-making with endogenous political parties. Society
chooses both the tax rate and the allocation of the revenues between income redistribution and public education. Agents differ
in their income and in their age, where young agents prefer public education and the old prefer income redistribution. I find
that when the cohort size of the young is not too large then public education arises as a political compromise between the
rich and the young segment of the poor. They collude in order to reduce the size of government (which benefits the rich) and
target some of its resources to education (which benefits the young poor). When the cohort size of the young is too large,
however, income redistribution crowds out public provision of education in the political equilibrium.
This paper explains people’s preferences for ethnic and racial diversity in higher education through a model based on self interest Although all citizens from the majority group value diversity and their own education in the same way their preferences for the level of diversity as well as the means of achieving it depend on their competitive positions in university admissions High-income majority citizens who tend to have better academic qualifications than lower-income majority candidates prefer more diversity which they want to achieve through affirmative action by displacing marginal majority candidates for marginal minority candidates Lower-income majority candidates prefer less diversity which they want to achieve through admissions rules that partially ignore academic qualifications Data from a CBS/NYT opinion poll confirm these predictions Our model suggests why recently several American universities have replaced race-conscious admissions policies with race-blind policies that de-emphasize standardized tests with little to no effect on diversity Income inequality and competitive admissions both make banning affrmative action more likely
Pour la première fois depuis de nombreuses années, un gouvernement conservateur a accédé au pouvoir au Danemark en 2001, en partie à cause de l'insatisfaction des électeurs quant aux politiques d'immigration menées par les socio-démocrates. On décrit la compétition électorale au Danemark comme portant esentiellement sur deux questions majeures -- la taille du secteur public et l'immigration -- et modélise l'équilibre politique à l'aide du concept de PUNE (Party Unanimity Nash Equilibrium), qui permet d'obtenir des équilibres dans des espaces politiques multi-dimensionnels lorsque les partis se forment de manière endogène. En calibrant le modèle sur des données électorales danoises, on montre que la xenophobie est susceptible de réduire la taille du secteur public danois d'un montant équivalent à la moitié de l'écart-type de la distribution de probabilité des opinions des électeurs danois concernant la taille idéale du secteur public.
Interpersonal preferencespreferences that depend on the characteristics of othersare typically hard to infer from observable individual behavior. As an alternative approach, this paper uses survey data to investigate interpersonal preferences. I show that self-reported attitudes toward welfare spending are determined not only by financial self-interest but also by interpersonal preferences. These interpersonal preferences are characterized by a negative exposure effectindividuals decrease their support for welfare as the welfare recipiency rate in their community risesand racial group loyaltyindividuals increase their support for welfare spending as the share of local recipients from their own racial group rises. These findings help to explain why levels of welfare benefits are relatively low in racially heterogeneous states.
This article develops a model of noncompetitive labor markets in which high-wage (good) and low-wage (bad) jobs coexist. Minimum wages and unemployment benefits shift the composition of employment toward high-wage jobs. Because the composition of jobs in the laissez-faire equilibrium is inefficiently biased toward low-wage jobs, these labor market regulations increase average labor productivity and may improve welfare. Copyright 2001 by University of Chicago Press.