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Income Inequality and Welfare spending: A disaggregated Analysis

Author

Listed:
  • Moene, Karl O.

    () (Dept. of Economics, University of Oslo)

  • Wallerstein, Michael

    (Department of Political Science, Northwestern University)

Abstract

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. We 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 socieities from 1980-1995. We 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 signinficantly higher in countries with more egalitarian income distributions. We show that this pattern is exactly what a theory of political support for redistributive social insurance programs would predict.

Suggested Citation

  • Moene, Karl O. & Wallerstein, Michael, 2003. "Income Inequality and Welfare spending: A disaggregated Analysis," Memorandum 18/2003, Oslo University, Department of Economics.
  • Handle: RePEc:hhs:osloec:2003_018
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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2003/Memo-18-2003.pdf
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    References listed on IDEAS

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    1. Dollar, David & Kraay, Aart, 2002. "Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
    2. Lipton, Michael & Ravallion, Martin, 1995. "Poverty and policy," Handbook of Development Economics,in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 41, pages 2551-2657 Elsevier.
    3. Kakwani, Nanak, 1993. "Poverty and Economic Growth with Application to Cote d'Ivoire," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 39(2), pages 121-139, June.
    4. J. J. Polak, 1957. "Monetary Analysis of Income Formation and Payments Problems," IMF Staff Papers, Palgrave Macmillan, vol. 6(1), pages 1-50, November.
    5. Lipton, Michael & Ravallion, Martin, 1995. "Poverty and policy," Handbook of Development Economics,in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 41, pages 2551-2657 Elsevier.
    6. Martin Ravallion & Gaurav Datt, 1996. "India's Checkered History in Fight against Poverty: Are There Lessons for the Future?," Monash Economics Working Papers archive-33, Monash University, Department of Economics.
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    Citations

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    Cited by:

    1. Martin Gassebner & Noel Gaston & Michael J. Lamla, 2011. "The Inverse Domino Effect: Are Economic Reforms Contagious?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 183-200, February.
    2. Rainald Borck, 2007. "Voting, Inequality And Redistribution," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 90-109, February.
    3. Bäckman, Olof, 2005. "Welfare States, Social Structure and the Dynamics of Poverty Rates. A comparative study of 16 countries, 1980-2000," Arbetsrapport 2005:7, Institute for Futures Studies.
    4. Crawford, Gregory S. & Pavanini, Nicola & Schivardi, Fabiano, 2015. "Asymmetric Information and Imperfect Competition in Lending Markets," CEPR Discussion Papers 10473, C.E.P.R. Discussion Papers.
    5. Bandyopadhyay, Sanghamitra & Esteban, Joan, 2007. "Redistributive taxation and public expenditures," LSE Research Online Documents on Economics 6537, London School of Economics and Political Science, LSE Library.
    6. Hennighausen, Tanja & Heinemann, Friedrich & Bischoff, Ivo, 2008. "Individual Determinants of Social Fairness Assessments: The Case of Germany," ZEW Discussion Papers 08-063, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    7. Jo Thori Lind, 2005. "Why is there so little redistribution?," Nordic Journal of Political Economy, Nordic Journal of Political Economy, pages 111-125.
    8. Carol Graham & Andrew Felton, 2006. "Inequality and happiness: Insights from Latin America," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, pages 107-122.
    9. Erling Barth & Karl O. Moene, 2009. "The Equality Multiplier," NBER Working Papers 15076, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Welfare state; insurance; redistribution; income inequality;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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