This paper explores cross-national public perceptions and beliefs about taxes and redistribution of income. Our main concern is whether the welfare regimes and the national tax policies can explain attitudinal variance. Despite our larger database and somewhat different measures, our study array neatly in the line of research, which are not able to declare any significant and systematic policy explanation of variations in public beliefs about taxation. The publics in countries with large tax-loads did not state that they found taxes particularly large, and variation in public perception could not be determined either by welfare regime or tax-rates in the country. Support of progressive taxation did not vary according to how progressive the tax system in the country was. To the contrary, we detected a negative relationship between tax progressivity and support of progressive taxation.
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.
This paper analyzes the processes of distribution and redistribution in post-industrial democracies. We combine a pooled time series data base on welfare state effort and its determinants assembled by Huber, Ragin, and Stephens (1997) with data on income distribution assembled in the Luxembourg Income Survey (LIS) archive. In the case of the LIS data, we re-calculate the micro-data in order to remove the distorting influence of pensioners on pre-tax, pre transfer income distribution. We examine the determinants of three dependent variables: pre-tax, pre-transfer income inequality, post- tax, post transfer income inequality and the proportional reduction in inequality from pre to post tax and transfer inequality. We hypothesized that pre-tax, pre-transfer income inequality would be determined by labor market institutions (union density, bargaining centralization), labor market conditions (unemployment), and economic structures (post-industrialism, third world imports). We hypothesized that the reduction in inequality would be determined by political configurations: directly by left government and indirectly via their effect on welfare state generosity by left government and Christian democratic government. Post tax and transfer income inequality was hypothesized to be a product of the combination of labor market variables and political variables. The results broadly confirms our hypotheses and the overall fit is very good.
During the last decade, few issues have generated as much debate among scholars, policy-makers and political activists as the relationship between economic globalization and domestic income inequality in the developed world. The central aim of this paper is to offer an empirical assessment of the impact of economic globalization on the distribution of income generated by the market and the ability and willingness of states to redistribute it. Three basic analyses will be conducted. The first and most extensive is an unbalanced pooled cross-sectional time-series analysis of the international and domestic sources of cross-national variance in income distribution and redistribution for various years between the early 1980s and the early 1990s. This analysis will employ measures of post-government disposable income, pre-government earnings and fiscal redistribution that have been calculated from household-level income surveys available from the Luxembourg Income Study (LIS), which provides by far the most comprehensive, detailed and accurate cross-national data on income inequality currently available. The second analysis will offer a full-scale pooled cross-sectional time-series analysis of less complete and comparable annual data from non-LIS sources on pre-government wage dispersion between 1970 and 1990. Finally, the paper will examine trends over an even longer period in the distribution of post-government income in a single country, the United States, for which reliable annual figures are available for the period from 1967 to 1996. Among the questions addressed in the paper are the following: Is integration into the world economy systematically related to domestic income inequality across countries or over time? Can any economic dislocation resulting from globalization be ameliorated by the redistributive activities of the state? Are there differences in the impact of the three main modes of international integration, trade, direct foreign investment and global financial flows? To what extent are income distribution and redistribution the product of essentially domestic political variables not directly associated with economic globalization?
The linkage between liberal democracy and income inequality has been the subject of considerable empirical research. However, the literature has largely ignored advances in the techniques for measuring income distribution which help to improve and strengthen the robustness of research findings in this field. by drawing upon recent developments in data collection and formal analyses, this paper explores inequality trends in selected Western democracies over the 1970s and 1980s. The results indicate that the gap between rich and poor is widening in some countries but not in all, thus pointing to the role of national policies in the redistribution of income. Conventional models grounded on demand driven policies persuasively explain declining income inequality, yet fail to account for the rising trends in the 1980s. Reasons for this failure are the omission of political 'slack' as a key dimension in redistributive options and the fallacy of linearity. The paper shows that despite significant progress, we are still not in a position to be confident of our theories and methods.
What has happened to incomes, inequality and satisfaction with living standards in the first stage of transition from a communist command economy to a market economy in East Germany? This paper tests six hypotheses about the transition to capitalism. Contrary to expectations, real incomes went up not down, net income inequality scarcely increased, and those who were previously advantaged did not become better off aí the expense of the previously disadvantaged. A major reason for the last two results was that the Federal Republic's taxes and benefits, which were much more progressive than the Communist regime's, had the effect of counteracting the increasing inequality of household gross incomes. It is also reported that, although real net incomes increased, satisfaction with living standards declined, probably because East Germans increasingly compared themselves with Western counterparts. Optimism about the future declined in 1991-2 after reaching very high levels in 1990 immediately after the revolution. This paper is based on the first three waves of the East German Socio-Economic Panel Study (SOEP) conducted in June 1990 (N= 4453 respondents in 2179 households), March-April 1991 and March-April 1992.
Germany has lower posttax income inequality than the United States and hence is doing better according to a strict egalitarian fairness ideal. On the other hand, the United States is doing better than Germany according to a libertarian fairness ideal, which states that people should be held fully responsible for their income. However, most people hold intermediate (responsibility-sensitive) positions, and hence it is interesting to study and compare fairness according to these positions. We find that the ranking of the two countries according to the intermediate positions depends on the treatment of the unexplained variation in the income equation. If we hold people responsible for the residual, the United States is considered fairer than Germany for all levels of responsibility sensitivity. If we, however, demand compensation for the residual, Germany is fairer than the United States for all levels of responsibility. The latter may be seen as the preferred approach as it follows a `benefit of the doubt' strategy.
Three decades ago, Canada and the United States shared almost identical relative poverty and inequality levels. Yet despite experiencing similar macro-level social and economic transformations from 1974 to 1994 , the two nations have experienced diametrically opposite trends in relative household poverty. While levels of poverty increased in the U.S. during this period, Canada has experienced declining household poverty. Several institutional economists have utilized the comparative case of Canada to emphasize the important role of one kind of institution for explaining differences in poverty or inequality rates at one point in time i . These economists have presented compelling evidence that institutional differences, and not broader cultural or economic differences, explain the poverty and inequality differences between Canada and the U.S. in the late 1980s. These institutional differences include unionization policy and social welfare packages. Yet despite the importance of these institutional differences for explaining differences in poverty or inequality levels at one point in time, my analysis of Luxembourg Income Survey (LIS) data on Canada and the U.S. over this period clearly demonstrates that it is the different ways each nation has reformed their transfer systems over this period, and not other institutional differences or reforms, that comprehensively explain the divergent trends in relative household poverty rates from 1974 to 1994. My analysis utilizes harmonized LIS data to identify the relative explanatory strength of different facets of the transfer systems for explaining the divergence in poverty from 1974-1994. Surprisingly, the breakdown analysis reveals that the divergent trends can largely be explained by differences in the structure and reform of each nation's Social Retirement benefits, a factor not mentioned as an explanatory factor in the previous literature. Differences in other 'Social Insurance' transfers and 'Means-Tested' benefits together also helped explain the divergence in poverty trends, but with less power than expected. The increased effectiveness of the Canadian transfers for reducing its relative household poverty rate compared to the American system over this period has consequences for explaining divergence in inequality and possibly health outcomes and other measures of well-being between these two nations.
This study aims to compare the anti-poverty effectiveness of taxes and income transfers among western welfare states. It is shown that a country's poverty outcome can be decomposed into the level of market-generated poverty, the overall level of welfare efforts, and the poverty reduction efficiency of taxes and transfers. Using the LIS micro data, the decomposition analysis suggests that welfare states differ widely in respect to the anti-poverty effectiveness of taxes and transfers and that cross-national variation in anti-poverty effectiveness is mainly attributed to differences in the level of welfare efforts, rather than to differences in the poverty reduction efficiency.
We analyze both the uses side and the sources side incidence of domestic climate policy using an analytical general equilibrium model, taking into account the degree of government program indexing. When transfer programs such as Social Security are explicitly indexed to inflation, higher energy prices automatically lead to cost-of-living adjustments for recipients. We show results with no indexing, 100 percent indexing, and partial indexing based on our analysis of actual transfer programs. When households are classified by annual income, the indexing of U.S. transfers is not enough to offset the regressive uses side, but when they are classified by annual expenditures as a proxy for permanent income, transfer indexing does offset regressivity across the lowest income groups.
We use a range of data sources to assess if, and to what extent, government redistribution policies have slowed or accelerated the trend towards greater income disparities in the past 20-25 years. In most countries, inequality among 'non-elderly' households has widened during most phases of the economic cycle and any episodes of narrowing income differentials have usually not lasted long enough to close the gap between high and low incomes that had opened up previously. With progressive redistribution systems in place, greater inequality automatically leads to more redistribution, even if no policy action is taken. We find that, in the context of rising market-income inequality, tax-benefit systems have indeed become more redistributive since the 1980s but that this did not stop income inequality from rising: market-income inequality grew by twice as much as redistribution. Between the mid-1990s and the mid-2000s, the redistributive strength of tax-benefit systems then weakened in many countries. While growing marketincome disparities were the main driver of inequality trends between the mid-1980s and mid-1990s, reduced redistribution was often the main reason why inequality rose in the ten years that followed. Benefits had a much stronger impact on inequality than social contributions or taxes, despite the much bigger aggregate size of direct taxes. As a result, redistribution policies were often less successful at counteracting growing income gaps in the upper parts of the income distribution.
The traditional way of measuring government redistribution across countries is to compare the income households report that they receive from private sources with the income they receive after government transfers have been added and taxes and social insurance contributions deducted. Unfortunately, this conventional measure does not capture 'second order' effects whereby income guarantees arising from public pensions make it less necessary for people to save for their retirement, rendering the 'pre-government' counterfactual to the observed post-government distribution unrealistic. In addressing this problem, we offer an alternative to the conventional direct redistribution measure that considers claims to future income generated by both the public and the private sectors. Data have been calculated for 51 country-years from household income surveys available from the Luxembourg Income Study.
Class differences in attitudes towards redistribution are compared across European countries. Two main competing hypotheses are tested, using scatterplots and multi-level modelling. The first is that class differences in attitudes are affected mainly by real class stratification, so that class differences tend to be larger where class differences in incomes and living standards are larger. The second is that such attitudes are affected mainly by class articulation and organisation; that is, the articulation of class issues in political programs and debates and trade union density. The analysis builds on data from the 2002 round of the European Social Survey, data from the Luxembourg Income Study and from the Comparative Manifesto Data Set. Results show that both stronger unions and more attention to class issues by parties independently strengthen the class-attitude link. Large income differences are instead typically associated with small class variance in attitudes: class differences in attitudes tend to be larger in countries with little inequality. The negative correlation between the degree of inequality and the strength of the class-attitudes link persists even after controlling for various measures of political articulation.
Why is there significant political support for progressive taxation and equalizing government transfers in western democracies? Possibilities include individual socail preferences for a less unequal distribution than what market forces alone would dictate, demand for social insurance, or successful political coalitions to redistribute away from the rich. We study the relative importance of fairness preferences, risk aversion, and self-interest in determining support for redistribution through a set of experiments in which a large number of subjects are asked to choose what level of taxation to implement under different decision conditions and with four alternative determinants of pre-tax income (two task-based, one random, and one based on socio-economic background). Treatments using varying costs of redistribution to the decision-maker and efficiency losses to recipients are used to study willingness to pay for redistribution and concern for aggregate inefficiency. Most of our subjects prefer that there be less inequality among others and demand for redistribution responds in predictable ways to the cost of taxation and to the dead-weigh loss associated with it. The external validity of the experiment is supported by the high correlation between tax decisions and political preferences. We also find evidence that preferred levels of redistribution are highly responsive to whether pre-tax incomes are determined according to task performance, a trend that is much more evident among men than among woman. Comparisons between redistributive choices under different experimental conditinos provide interesting insights with regard to the relative importance of inequality aversion and self-interest when choosing under uncertainty and when uncertainty is resolved. In the first case, individuals expectation about their future position in the income distribution has a considerable impact on their tax choices. When sure of the effect on their own earnings, subjects tax choices are primarily goverened by self-interest, but fairness preferences continue to play a role.
