Income Distribution and Social Expenditures: A Cross-National Perspective

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe assemble data from several different sources to examine the cross-national effects of inequality and trust on social expenditures. We find that the inequality between the middle classes and the poor (as measured by the 50/10 percentile ratio) has a small, positive impact in social spending; but inequality between the ends of the distribution and middle class (measured by the 90/50 percentile ratio) has a large and negative impact on social spending. Different measures of trust are shown to have a large and positive impact on spending, implying that more cohesive, trusting societies are more willing to share economic resources with others not so fortunate. Our results suggest that as the "rich" become more distant from the middle and lower classes, they find it easier to opt out of public programs and to buy substitutes for social insurance in the private market. This funding implies that over time rising inequality will erode support for social institutions and social spending that provides insurance against income loss, upward mobility for the disadvantaged, and equality of opportunity for all citizens. . "America's high earners-the fortunate top fifth-thus feel increasingly justified in paying only what is necessary to insure that everyone in their community is sufficiently well educated and has access to the public services they need to succeed" -Reich (1991)Economic inequality, either actual or perceived, plays an important role influencing the set of goods and services that are subsidized by the public sector. Public expenditures on defense, police and fire services, roads, foreign aid, or research and development may (or may not) have benefits for all citizens. However, aside from those directly employed in these activities, such expenditures do not directly affect the well-being of households. In this paper, we focus instead on public expenditures that provide income or goods and services directly tohouseholds. This implies that we are primarily concerned with public expenditure on the provision of "private goods," including cash and near-cash transfers. 1In this paper, we first document the trends in social spending as we have defined it and quickly review that existing literature that links social expenditures and inequality. We then construct and estimate a new model of the empirical relationship between inequality and social expenditures. Our main questions deal with the effects that inequality and trust h...

Are Public and Private Social Expenditures Complementary?

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The Impact of Redistributive Policies on Inequality in OECD Countries

“…They show that higher inequality tends to cause higher levels of redistribution, because the median voter favors the more redistribution, the further away she is from the mean income. Hayes et al (1991) and Schwabish et al (2006), among others, confirm empirically that the income distribution indeed impacts social expenditures. The results in the literature thus suggest that there is an effect of redistributive policies on levels of inequality, but, at the same time, inequality also influences governments' policies.…”

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