Income Inequality and the Demand for Redistribution: A Test of Alternative Theories

Abstract

While traditional political economic theory predicts that higher incomeinequality leads to more extensive redistribution policy, empiricalstudies often show the opposite relation. Many alternative theorieshave been proposed to reconcile these. We suggest a test of thesealternative theories. Two steps are articulated in the prediction of thetraditional theory: 1) the effect of income distribution on people’spreferences for redistribution, and 2) the translation of the givenpreferences into an actual policy. As alternative theories change eitherof the two steps of the traditional theory, we can test thesealternative theories by checking the viability of each step. While ourtest supports the theory emphasizing the role of social mobility, thecorrelation between the measure of social mobility and theredistribution policy does not support it. A new theory is required.