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The median voter hypothesis, income inequality and income

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  • Branko Milanovic

    (World Bank)

Abstract

The median voter hypothesis has been central to an extensive literature on consequences of income distribution. For example, it has been proposed that greater inequality is associated with lower growth, because of the greater redistribution that is sought by the median voter when income distribution is less equal. There have however been no proper tests of the median-voter hypothesis concerning redistribution, because of previous absence of data on factor income distribution (that is, incomes before taxes and transfers) across households, and thus on the gains by poorer households from redistribution. The study reported in this paper is based on the required data, with 79 observations drawn from household budget surveys from 24 democracies. The results strongly support the conclusion that countries with greater inequality of factor income redistribute more to the poor. This is so even when we control for the share of the elderly in the population and for pension transfers. The evidence that the median-voter hypothesis adequately describes the collective-choice mechanism is however considerably weaker. Although middle-income groups gain more/or lose less through redistribution in countries where initial (factor) income distribution is more unequal, this regularity is all but lost when, by excluding pensions, we look only at explicit redistributive social transfers from which the middle classes contemporaneously gain little.This leaves us searching for alternative explanations: do middle-classes gain from transfers in the long-run even if not contemporeneously?, or is the median voter hypothesis, based on direct democracy, a proper representation of the the mechanisms of collective-decision making in representative democracy?

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  • Branko Milanovic, 2003. "The median voter hypothesis, income inequality and income," HEW 0305001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwphe:0305001
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    References listed on IDEAS

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    Cited by:

    1. Drosdowski, Thomas, 2005. "Democracy Deficits, Inequality and Pollution. A Politico-Economic Analysis," Hannover Economic Papers (HEP) dp-323, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    2. Dawood Mamoon, 2015. "Good versus Bad Political Institutions and Economic Welfare?," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 3(4), pages 165-175, April.
    3. Asplund, Rita, 2004. "A Macroeconomic Perspective on Education and Inequality," Discussion Papers 906, The Research Institute of the Finnish Economy.
    4. Kira Boerner & Silke Uebelmesser, 2007. "Migration and the welfare state: The economic power of the non-voter?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(1), pages 93-111, February.
    5. Lind, Jo Thori, 2007. "Fractionalization and the size of government," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 51-76, February.
    6. Maria Kula & Daniel Millimet, 2010. "Income Inequality, Taxation, and Growth," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 38(4), pages 417-428, December.
    7. Günther Rehme, 2007. "Economic Growth and (Re-)Distributive Policies in a Non-cooperative World," Journal of Economics, Springer, vol. 91(1), pages 1-40, May.
    8. Holger Strulik, 2007. "A distributional theory of government growth," Public Choice, Springer, vol. 132(3), pages 305-318, September.
    9. Balafoutas, Loukas & Kocher, Martin G. & Putterman, Louis & Sutter, Matthias, 2013. "Equality, equity and incentives: An experiment," European Economic Review, Elsevier, vol. 60(C), pages 32-51.
    10. Robert A.J. Dur & Coen N. Teulings, 2001. "Education and Efficient Redistribution," Tinbergen Institute Discussion Papers 01-090/3, Tinbergen Institute, revised 12 Jun 2003.
    11. Roman Arjona & Maxime Ladaique, 2003. "Mark Pearson Growth, Inequality and Social Protection," Canadian Public Policy, University of Toronto Press, vol. 29(s1), pages 119-140, January.
    12. Loukas Karabarbounis, 2011. "One Dollar, One Vote," Economic Journal, Royal Economic Society, vol. 121(553), pages 621-651, June.
    13. Santanu Gupta & Raghbendra Jha, 2006. "Local public goods in a democracy: Theory and evidence from rural India," ASARC Working Papers 2006-06, The Australian National University, Australia South Asia Research Centre.
    14. Cristina Blanco Pérez & Xavier Ramos, 2010. "Polarization And Health," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(1), pages 171-185, March.
    15. Grossmann, Volker, 2003. "Income inequality, voting over the size of public consumption, and growth," European Journal of Political Economy, Elsevier, vol. 19(2), pages 265-287, June.
    16. Rainald Borck, 2007. "Voting, Inequality And Redistribution," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 90-109, February.
    17. Branko Milanovic & Mark Gradstein & Yvonne Ying, 2003. "Democracy, Ideology And Income Inequality: An Empirical Analysis," Public Economics 0305002, University Library of Munich, Germany.
    18. Miquel Pellicer & Vimal Ranchhod & Mare Sarr & Eva Wegner, 2011. "Inequality Traps in South Africa: An overview and research agenda," SALDRU Working Papers 57, Southern Africa Labour and Development Research Unit, University of Cape Town.
    19. Drosdowski, Thomas, 2006. "Does Democratization Benefit the Environment in the Long-Run in the Presence of Inequality?," Hannover Economic Papers (HEP) dp-347, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    20. Achim Kemmerling, 2003. "Regional Input on the Social Dimension of Ezoneplus: Belgium, The Netherlands, France, Austria, and Germany," Eastward Enlargement of the Euro-zone Working Papers wp13c, Free University Berlin, Jean Monnet Centre of Excellence, revised 01 Mar 2003.
    21. CROCI ANGELINI Elisabetta & D'AMBROSIO Conchita & FARINA Francesco, 2001. "Do Preferences in EU Member-States Support Fiscal Federalism?," IRISS Working Paper Series 2002-01, IRISS at CEPS/INSTEAD.
    22. Laura Policardo, 2016. "Is Democracy Good for the Environment? Quasi-Experimental Evidence from Regime Transitions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(2), pages 275-300, June.

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    Keywords

    median voter; income distribution; income inequality;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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