The paradox of politics and policy in redistributing income

With political ideology with respect to the income distribution measured by proxy as the fraction of conservative coalition victories, it is found that over the period 1961–1984 the degree of conservative coalition strength is positively associated with changes in inequality, holding the effects of unemployment and inflation constant. A natural question is why don't the low income types vote in candidates who will consistently redistribute income in their favor? The result of such a political process would be a downward trend in income inequality. In point of fact, there is no evidence whatsoever of any trend in income equality over the period. The answer to both questions may be that Tullock (1983, 1986) is on to something. If the middle class voters transfer gains back and forth, the poor can't gain and they don't, then the distribution should be stable and is. Income redistribution is not a free good. It has been widely recognized that there are efficiency losses to the economy for movements toward greater income inequality (see Okun, 1975). Blinder (1982) has suggested an analytical framework for modeling the linkage between equity and efficiency. Structural modeling of policy variables on equality measures and Farrell-type efficiency measures reveals the order of magnitude of the trade-off for some policy instruments (see Hayes, Scully and Slottje, 1987a). It is highly likely that policy permutations that affect equity in one direction affect efficiency in the opposite direction. Political coalitions that succeed in moving the economy to a greater degree of equity create efficiency losses. The efficiency losses produce political coalitions that move the economy to a higher degree of efficiency (lower equity). By implication, policy and the income distribution are stochastic, and, the statistical association between the income distribution measures and the conservative coalition variable is spurious. Nelson and Plosser (1982) have found that a vast number of U.S. macroeconomic time series behave as a random walk. It has also been found that the various equity measures reported in this paper, when examined over the period 1947 to 1984, behave as a random walk (see Hayes, Porter-Hudak, Scully and Slottje, 1987b). One explanation is that in light of the strong empirical evidence on the stochastic evolution of the economy, of economic policy and of equity, and the finding of an empirical linkage between the equity measures and the political variable employed here, a case can be made that the strength of these political coalitions behaves stochastically. The conclusion is not that politics does not affect economic variables. Rather, the position of Congress on the liberal-conservative continuum is stochastic. These results are consistent with the Tullock hypothesis that redistribution is basically a middle income, pressure group activity with little gain for those as the bottom. Tullock might argue that it doesn't matter which group on the spectrum controls Congress, the transfers will be constrained to the middle. The empirical evidence doesn't invalidate his contentions. We do not have enough degrees of freedom to test whether the measure of the liberal-conservative spectrum is a deterministic function or is an autoregressive moving average (ARMA) process. Copyright Kluwer Academic Publishers 1989