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Rising Inequality and the Politics of Redistribution in Affluent Countries

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  • Lane Kenworthy

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  • Jonas Pontusson

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Abstract

Inequality has been an increasingly prominent object of study among comparativists. We use data from the Luxembourg Income Study to examine household market inequality, redistribution, and the relationship between market inequality and redistribution in affluent OECD countries in the 1980s and 1990s. We observe sizeable increases in market household inequality in most countries. This development appears to have been driven largely, though not exclusively, by changes in employment: in countries with better employment performance, lowearning households benefited relative to high-earning ones; in nations with poor employment performance, low-earning households fared worse. In contrast to widespread rhetoric about the decline of the welfare state, redistribution increased in most countries during this period, as existing social-welfare programs compensated for the rise in market inequality. They did so in proportion to the degree of increase in inequality, producing a very strong positive association between changes in market inequality and changes in redistribution. We discuss the relevance of Meltzer and Richard s median-voter theory and power resources theory for understanding cross-country differences and over-time changes in the extent of compensatory redistribution.

Suggested Citation

  • Lane Kenworthy & Jonas Pontusson, 2005. "Rising Inequality and the Politics of Redistribution in Affluent Countries," LIS Working papers 400, LIS Cross-National Data Center in Luxembourg.
    • Handle: RePEc:lis:liswps:400
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    2. repec:cup:apsrev:v:95:y:2001:i:04:p:859-874_40 is not listed on IDEAS
    3. Nelson, Phillip, 1999. "Redistribution and the Income of the Median Voter," Public Choice, Springer, vol. 98(1-2), pages 187-194, January.
    4. Kenworthy, Lane, 2002. "Do affluent countries face an income-jobs tradeoff?," MPIfG Discussion Paper 01/10, Max Planck Institute for the Study of Societies.
    5. Beramendi, Pablo & Cusack, Thomas R., 2004. "Diverse disparities: The politics and economics of wage, market and disposable income inequalities," Discussion Papers, Research Unit: Institutions, States, Markets SP II 2004-08, WZB Berlin Social Science Center.
    6. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1, September.
    7. Blau, Francine D & Kahn, Lawrence M, 1996. "International Differences in Male Wage Inequality: Institutions versus Market Forces," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 791-836, August.
    8. Romer, Thomas, 1975. "Individual welfare, majority voting, and the properties of a linear income tax," Journal of Public Economics, Elsevier, vol. 4(2), pages 163-185, February.
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    10. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
    11. Andrea Brandolini & Anthony B. Atkinson, 2001. "Promise and Pitfalls in the Use of "Secondary" Data-Sets: Income Inequality in OECD Countries As a Case Study," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 771-799, September.
    12. Freeman, Richard B. & Katz, Lawrence F. (ed.), 1995. "Differences and Changes in Wage Structures," National Bureau of Economic Research Books, University of Chicago Press, number 9780226261607, April.
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