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The Politics of Income Inequality in the OECD: The Role of Second Order Effects

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  • Pablo Beramendi

Abstract

Why, contrary to Meltzer and Richard s prediction (1981), do nations with low levels of wage inequality have large welfare states? Why in turn, consistently with MR (1981), do many of these same nations have large levels of market income inequality? This paper points to the role of second order effects of redistributive policies as the key to solve the theoretical puzzle posed by these to empirical phenomena. The first half of the paper introduces the notion of several orders of incidence of redistribution as well as a theoretical discussion of the two major mechanisms through which second order effects take place: the impact of redistribution on labor supply and the interaction between these second order effects and different institutional aspects of advanced industrial societies, most prominently the collective bargaining institutions. Thereafter the argument is tested by analyzing the determinants of wage and market income inequality in 15 OECD nations between 1980 and 1995.

Suggested Citation

  • Pablo Beramendi, 2001. "The Politics of Income Inequality in the OECD: The Role of Second Order Effects," LIS Working papers 284, LIS Cross-National Data Center in Luxembourg.
    • Handle: RePEc:lis:liswps:284
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    Cited by:

    1. Ive Marx & Lina Salanauskaite & Gerlinde Verbist, 2013. "GINI DP 82: The paradox of redistribution revisited: and that it may rest in peace?," GINI Discussion Papers 82, AIAS, Amsterdam Institute for Advanced Labour Studies.
    2. Vincent Mahler & David Jesuit, 2004. "State Redistribution in Comparative Perspective: A Cross-National Analysis of the Developed Countries," LIS Working papers 392, LIS Cross-National Data Center in Luxembourg.
    3. Ive Marx & Brian Nolan & Javier Olivera, 2014. "The Welfare State and Anti-Poverty Policy in Rich Countries," Working Papers 1403, Herman Deleeck Centre for Social Policy, University of Antwerp.
    4. Ive Marx & Lina Salanauskaite & Gerlinde Verbist, 2013. "The paradox of redistribution revisited: and that it may rest in peace?," LIS Working papers 593, LIS Cross-National Data Center in Luxembourg.
    5. Laurie Beaudonnet, 2015. "A Threatening Horizon: The Impact of the Welfare State on Support for Europe," Journal of Common Market Studies, Wiley Blackwell, vol. 53(3), pages 457-475, May.
    6. David K. Jesuit & Vincent A. Mahler, 2010. "Comparing Government Redistribution Across Countries: The Problem of Second-Order Effects," Social Science Quarterly, Southwestern Social Science Association, vol. 91(s1), pages 1390-1404.
    7. Marx, Ive & Salanauskaite, Lina & Verbist, Gerlinde, 2013. "The Paradox of Redistribution Revisited: And That It May Rest in Peace?," IZA Discussion Papers 7414, Institute of Labor Economics (IZA).

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