An Exploratory Analysis of the Political Economy of Inequality and Redistribution in Advanced Democracies

Abstract

How have the advanced democracies reacted to increase in income inequality? How has each country's government counterbalanced to the increase in income loss and increasing risk due to rising income inequality? This paper explores the trend and patterns of income inequality in advanced democracies. Advanced democracies show a common trend of dramatic increases in income inequality since the 1980s. Cross-national differences in household income inequality persist, however. Moreover, the extent to which the government makes an effort to compensate and redistribute varies across countries greatly. Our analysis is a direct extension of Kenworthy and Pontusson (2005), but we go beyond what Kenworthy and Pontusson have shown in their analysis by analyzing the updated data that spans up until the year 2010. The use of the updated data allows us to examine the patterns of inequality and redistribution since the 2000s. This paper also examines the relationship between inequality, redistribution and social spending, utilizing the comparative political economy literature such as the Meltzer-Richard model, 'paradox of redistribution,' government partisanship, electoral systems, 'varieties of capitalism' and welfare state regime theory. This exploratory analysis suggests interesting patterns of inequality and redistribution and sheds some light on the political economy of inequality and redistribution in advanced democracies.