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Income Inequality and Redistribution in Multilevel Perspective

Kaitlin Alper (University of Southern Denmark)

This paper brings together literature on multi-level governance and inequality to shed light on the question of what drives within-region inequality and redistribution. While there has been much discussion of spatial inequality between left-behind regions and metropolitan hubs, inequality within regions contributes equally to national-level inequality. Analyses using a novel dataset harmonizing four decades of LIS and SILC microdata across 19 advanced democracies first demonstrate the importance of regionally-determined social transfers, whose inequality-reducing effect rivals that of nationally-determined transfers. But what determines the extent to which regional governments will spend more on social transfers? I show that regional partisanship and the partisan interactions between levels of government shape the extent to which regional governments reduce inequality via the transfer system, when they have the autonomy to do so. This suggests that subnational governments can have an important role to play in reducing inequality, and provides a foundation for a research agenda which can combat the ‘methodological nationalism’ (Jeffery & Schakel 2013) historically present in inequality studies.


Liberalization and income inequality: A comparative analysis (1974-2013)

Klaus Armingeon (University of Zurich) and David Weisstanner (Aarhus University)

Liberalization, the removal of market barriers, has been a major trend in many advanced economies since the 1980s. Likewise, income inequality has increased during this time period. Although individual cases of liberalization policies have been associated with rising inequality, to date we lack a systematic empirical analysis covering liberalization in multiple policy fields, across many countries and over a long period of time. To address this gap, we study the relationship between liberalization and income inequality using an encompassing new database on liberalizing reforms in 13 policy fields, covering 18 advanced capitalist democracies between 1974 and 2013. We argue that the form of liberalization affects inequality, and we distinguish between the intensity of liberalization reforms and the extent to which liberalization is compensated through de-liberalizing policy changes. Using error correction models applied to time-series cross-sectional data, we find that liberalization reforms are associated with substantially higher levels of income inequality in the long run via both higher market inequality and lower redistribution. We also provide some evidence that compensation can work: the inegalitarian impact of liberalization reforms is less pronounced when governments introduce de-liberalizing policy reforms alongside liberalization.


Persistent Inequality: Mobility and Intergenerational Redistribution 

Pablo Beramendi (Duke University)

We approximate inequality as a dynamic problem where parents make decisions about how much and how to invest in the economic opportunities of the next generation. Theoretically, we analyze the degree to which sclerosis of local labor markets (lack of mobility) plays a role in the elder generation’s choice and reinforces the inclination by high and middle income households not to support public investment in human capital formation, thereby reinforcing inequality across generations. We evaluate this feedback loop using a wide range of USA and European micro-data.


The Social Consequences of the Increase in Refugees to Germany

David Brady (University of California-Riverside)

More than one million refugees migrated to Germany in 2015-2016. The increase in refugees was rapid, visible, and controversial, and varied substantially across German districts. Therefore, it provides unique leverage for analyzing how fractionalization, threat and contact shape the consequences of immigration and ethno-linguistic heterogeneity. We innovatively focus on within-district/within-person change with individual-level panel data and precise administrative data on district-level refugee shares. Using the German Socio-Economic Panel 2008-2018, we analyze three-way (person, year, district) fixed effects models of six exclusionary beliefs and behaviors. The results demonstrate a two-level cross-cutting process that integrates threat and contact theory. As the refugee share increased nationally, concerns about immigration, concerns about social cohesion and far right party support increased. As the refugee share increased locally however, an individual’s concerns about immigration and far right party support declined. Also, an individual’s concerns about social cohesion, trust, residential moves, and subjective fair tax rates did not change despite rapidly increasing refugee shares. On balance, interactions reveal that in districts with increasing unemployment, refugee shares are positively associated with concerns about immigration and residential moves. Aside from such districts however, rising district-level refugee shares reduced or did not heighten exclusionary beliefs and behaviors. Overall, local level refugee shares trigger contact that counteracts national level threat and fractionalization.


Digitalization or green transition? Varyîng effects on risk perceptions and social policy preferences

Marius Busemeyer (University of Constance)

Rapid technological change (often dubbed „digitalization“) and the green transiation towards a climate-neutral economy are two major socio-economic developments, which will deeply affect the labor markets of advanced post-industrial democracies in the years to come. Whereas there is mounting and compelling evidence that digitalization will enhance inequality and potential political polarization, this is less clear in the case of the green transition. In this paper, I approach the issue from the perspective of workers. A first research question is whether workers perceive labor market risks related to these two major trends differently. I hypothesize that workers are less likely on average to be concerned about the green transition as it is directly related to a highly salient political valence issue (climate change). Second, I study to what extent workers support government action to deal with the consequences of socio-economic change. Again, I expect support for policy responses to the green transition to be higher on average as it is related to a widely supported transformation of the economy, whereas digitalization often occurs below the radar. Third, I analyze whether preferred policy responses differ depending on whether policies are supposed to address digitalization or the green transition. I posit that social investment type policies should be more supported as a response to the green transition as it is a more positively supported political project with clear connections to the long term, whereas people are more worried about short-term job losses in the case of digitalization and hence more likely to support compensatory policies. In order to address these questions empirically, I analyze novel and original survey data collected in the summer of 2022 in six countries (Germany, the US, Spain, Sweden, Poland and Japan). Throughout the paper, I explore cross-national and sub-group variation in attitudes.


Income, Equality of Opportunity and Equality of Outcomes in Industrialised Democracies 

Verena Fetscher and David Rueda (Oxford University)

Beliefs in equality of opportunity or equality of outcomes (whether measured as income inequality or intergenerational mobility) are increasingly popular as an explanation for redistribution preferences. In this paper, we start with the relationship between material self-interest and redistribution preferences as a baseline. We then explore the influence of beliefs in equality of opportunity or of outcomes as potentially important factors influencing the baseline effect of income. And we introduce a set of intuitions why the theorized effects these perceptions may be income-dependent (more relevant to the rich, less so to the poor). We test our hypotheses with data from 3 different surveys: ISSP 2009, EB 2017, and ESS 2018. And we introduce an information provision survey experiment to complement our observational analysis.


Giving with One Hand and Taking with the Other? Partisanship, Regressive Taxation and Welfare States Revisited

Joe Ganderson (LSE), Hanna Kleider (KCL) & Julian Limberg (KCL)

This article revisits the paradoxical relationship between regressive revenue and welfare state spending. In recent decades, comparative political economists have identified a nexus between the two, suggesting that governments constrained by an aversion to taxing capital are increasingly reliant on regressive taxes, in particular value-added tax (VAT). We advance this discussion in two ways. First, we assert the primacy of partisan effects in shaping this association. Whether governments expand regressive tax tools to uphold welfare states is ultimately determined by their political ideology, with leftist governments disproportionately devoting the proceeds of regressive taxation to welfare. Second, we argue that VAT should be understood primarily as a technical update to already existing forms of consumption taxation and earlier consumption taxes must be considered when measuring the historical development of regressive taxes. To test our argument, we construct a new, encompassing measure of taxes on poorer citizens that is sensitive to multiple interrelated tax indicators and to changes in modes of regressive tax over time. We then run panel data analyses covering 21 OECD countries over more than three decades. Our results show that a higher tax burden on the poor is positively correlated to welfare state expenditure under leftist governments. However, under more rightist governments, this link disappears. Our findings reassert the importance of partisanship in determining welfare state support and highlight the need to examine different taxes as policy substitutes when studying the tax state-welfare state nexus.


Challenging Inequality: Conclusion

Evelyne Huber and John D. Stephens (University of North Carolina at Chapel Hill)

We diagnose different patterns of increasing income inequality in post-industrial societies since the 1980s and analyze the factors that are driving these increases and those that are accounting for persistent marked differences between countries. We show that in some countries the top 1% increased their share of national income greatly whereas in other countries the low-income groups grew larger and sank deeper. We analyze individual and household market income of the working age population, redistribution of market household income, and disposable household income, focusing on inequality and poverty. We find that a combination of globalization and skill biased technological change has led to dualization of the labor market and to rising levels of unemployment, which in turn have had important direct and indirect effects on inequality and poverty. The indirect effect has worked through a reduction in the generosity of social insurance. Strong positions of labor at the enterprise and the societal level have worked against rising inequality, as has a history of strong human capital spending. Generosity of the welfare state has remained the most important variable shaping redistribution. We combine statistical analysis of data from 22 post-industrial countries with a comparative historical analysis of four countries that represent different political economy and welfare state regime types: Germany, Spain, Sweden, and the United States.


Welfare policy and nativist resentment in Europe

Bilyana Petrova (Texas Tech University) and Alina Vrânceanu (Universitat Pompeu Fabra)

How do welfare systems affect attitudes to immigration? While the impact of immigration on public support for redistribution has received considerable scholarly attention, we know much less about the effect of social policies on immigration attitudes. This paper seeks to contribute to this literature by examining how the structure of the welfare state affects citizens’ views of immigrants. We addressthis question in a two-stage empirical strategy. Hierarchical models combining individual-level attitudinal data and regional- and country-level data on immigration

and welfare state dynamics in about 16 European countries between 2002 and 2018 suggest that more comprehensive welfare regimes are associated with more positive views of immigrants. Furthermore, a regression discontinuity design drawing on a natural experiment in Denmark reveals that citizens’ attitudes toward immigrants became less favorable following the announcement of a reform envisioning substantial cuts to a popular educational program. Taken together, these analyses imply that the structure of the welfare state influences how citizens view newcomers into their country.


Income Expectations and Left Party Support in Germany, 1984-2019

David Rueda (Oxford University) and Daniel Stegmueller (Duke University)

When examining the material bases of political behavior, the large literature on partisanship and party support has limited its focus on individuals’ current positions in the income distribution. In this paper, we challenge this traditional view. We argue that the political preferences and choices of forward-looking individuals are the result of maximizing their future (life-cycle) income, and not just their current income. Thus, understanding partisanship requires modeling both current income as well as the likely path of future incomes for each individual. Based on the labor economics literature on Mincer-type life-cycle profiles, we propose a simple way of estimating the present value of an individual’s expected future income.

We provide evidence using German individual- and household-level panel data spanning more than three decades, the Socio-Economic Panel Study. We focus on an individuals’ support for parties belonging to the Left. We first calculate dynamic income expectations by estimating individual-specific Mincer equations for labor incomes via random growth curve models. These expectations then enter a dynamic probit equation for left partisanship, which adjusts for both heterogeneity and state-dependence, as well as for random election shocks. Our approach offers promising new insights into the effects of expectations on the support for left parties and shows that statements about a limited role of material self-interest or income might be premature.


Profits, R&D and Inequality in the Nordic “Knowledge Economies”

Mark Schwartz (University Virginia)

Are the egalitarian, full employment Nordic “information economies” politically and economically sustainable in a world in which dualized labor markets are becoming more pervasive globally and locally, and in which states increasingly compete to develop new knowledge industries? Today’s R&D spending has a strong connection to tomorrow’s competitive industries, and the industrial organization of large, globally competitive sectors in turn shapes income distribution and organized political power in the Nordics. Yet all are exposed in varying degrees to ‘Nokia risk’ – the risk that R&D spending and thus future growth is hostage to a very small number of firms. Simultaneously, growth of these firms tends to produce politically damaging labor market dualization. This paper uses data from the European Commission’s Industrial Research and Innovation project database to discern differences among the rich OECD countries in terms of the sectoral location and scale of R&D spending, locates the Nordics within that group. and assess the degree of Nokia risk.