Income inequality, political attractiveness, and income redistribution: An extension of Milanovic (2000) GRA 5917: Public Opinion and Input Politics Term Paper Proposal Knut-Eric Joslin October 7, 2010

Purpose To empirically examine the relationship between inequality and redistribution while accounting for politically motivated transfers. 2Knut-Eric N. Joslin

Theories of Redistribution Median Voter Theorem – Expectation? Redistribution is contingent on median voter’s (MV) preferences  MV max transfer subject to budget constraint. Politically Motivated Redistribution – Expectation? Certain groups of ”swing” voters are politically attractive for redistribution. Characteristics: Greed and ideology. Meltzer, Allen H. and Scott F. Richard (1981). A Rational Theory of the Size of Government. The Journal of Political Economy, 89(5): Dixit, Avinash and John Londregan (1996). The Determinants of Success of Special Interests in Redistributive Politics. The Journal of Politics, 58(4): Knut-Eric N. Joslin

Milanovic (2000) Empirical investigation of income redistribution, including MV hypothesis. Criticizes earlier approaches T = f(Id, Z) LIS data solves specification issues Proposes factor vs. disposable comparison R = f(Im, Z) Milanovic (2000). The median-voter hypothesis, income inequality, and income redistribution: an empirical test with the required data. European Journal of Political Economy, 16: Knut-Eric N. Joslin

An Extension Purpose? To examine the relationship between inequality and redistribution while accounting for politically motivated transfers. The empirical approach will build on Milanovic (2000) Re-estimate Milanovic’s equations, but include measures of swing voter characteristics. 5Knut-Eric N. Joslin

Model Specification Fixed Effects Model: R = β 0 + X*β + ∑ i α *Country i + e it Here, R = Sharegain, defined for various groups (bottom 20% or 50%, median group) Milanovic’s Approach: R = β 0 + β 1 *Position of Median Voter it + β 2 *Age Over 65% it + ∑ i α i *Country i Proposal: R = β 0t + β 1t *Position of Median Voter it + β 2t *Age Over 65% it + β 3t *Relative Greed it + β 4t *Relative Cut Pt. Density it + ∑ i α i *Country i 6Knut-Eric N. Joslin

Data: Measuring Redistribution Luxembourg Income Study (LIS) – Factor income = wages + self-employ income + income from capital + gifts LIS code: V1 + V4 + V5 + V8 + V32 + V33 + V34 + V35 + V36 – Similarly for disposable income – Breakdown by deciles 7Knut-Eric N. Joslin

Data: Measuring Voter Characteristics World Value Survey (WVS) and Comparative Study of Electoral Systems (CSES) “Greed” (strength of ideological affiliation, κ) – WVS E178: Close to a any particular party? Unfortunately, only used in wave EVS1981 (1981 and 1982, limited countries) – CSES A3004, B3028, C3020: Do you think of yourself as close to a party? Other possibilities from CSES, but different phrasing than WVS “Cut Point Density” (pol. self-placement wrt median) – WVS E033: Self positioning on Left-Right political scale. Many waves available. – CSES A3031, B3045, C3013: Left-Right self. 8Knut-Eric N. Joslin

Challenges Dahlberg and Johansson’s ideal criteria: “Second best” approach for “swing” depends on data Access to LIS data Unanticipated statistical issues? Lind points out a “mechanical correlation” in Milanovic Dahlberg, Matz and Eva Johansson (2002). On the Vote-Purchasing Behavior of Incumbent Governments. American Political Science Review, 96(1): Lind, Jo Thori (2005). Why is there so little redistribution? Nordic Journal of Political Economy, 31: Knut-Eric N. Joslin