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Income Inequality and Welfare spending: A disaggregated Analysis

Author

Listed:
  • Moene, Karl O.

    (Dept. of Economics, University of Oslo)

  • Wallerstein, Michael

    (Department of Political Science, Northwestern University)

Abstract
The welfare state is generally viewed as either providing redistribution from rich to poor or as providing publicly-financed insurance. Both views are incomplete. Welfare policies provide both insurance and redistribution in varying amounts, depending on the design of the policy. We explore the political consequences of the mix of redistribution and insurance in the context of studying the impact of income inequality on expenditures in different categories of welfare spending in advanced industrial socieities from 1980-1995. We find that spending on pensions, health care, family benefits, poverty alleviation and housing subsidies is largely uncorrelated with income inequality, but that spending on income replacement programs such as unemployment insurance, sickness pay, occupational illness and disability are signinficantly higher in countries with more egalitarian income distributions. We show that this pattern is exactly what a theory of political support for redistributive social insurance programs would predict.

Suggested Citation

  • Moene, Karl O. & Wallerstein, Michael, 2003. "Income Inequality and Welfare spending: A disaggregated Analysis," Memorandum 18/2003, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2003_018
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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2003/Memo-18-2003.pdf
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    Citations

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    Cited by:

    1. Martin Gassebner & Noel Gaston & Michael J. Lamla, 2011. "The Inverse Domino Effect: Are Economic Reforms Contagious?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 183-200, February.
    2. Sanghamitra Bandyopadhyay & Joan Esteban, 2007. "Redistributive Taxation and PublicExpenditures," STICERD - Distributional Analysis Research Programme Papers 95, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    3. Rainald Borck, 2007. "Voting, Inequality And Redistribution," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 90-109, February.
    4. Bäckman, Olof, 2005. "Welfare States, Social Structure and the Dynamics of Poverty Rates. A comparative study of 16 countries, 1980-2000," Arbetsrapport 2005:7, Institute for Futures Studies.
    5. Barnes, Lucy & Hicks, Timothy, 2015. "Risk, Recession, and Declining Popular Demand for the Welfare State," CAGE Online Working Paper Series 228, Competitive Advantage in the Global Economy (CAGE).
    6. Carol Graham & Andrew Felton, 2006. "Inequality and happiness: Insights from Latin America," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 4(1), pages 107-122, April.
    7. Erling Barth & Karl O. Moene, 2009. "The Equality Multiplier," NBER Working Papers 15076, National Bureau of Economic Research, Inc.
    8. Hennighausen, Tanja & Heinemann, Friedrich & Bischoff, Ivo, 2008. "Individual Determinants of Social Fairness Assessments: The Case of Germany," ZEW Discussion Papers 08-063, ZEW - Leibniz Centre for European Economic Research.
    9. Jonathan A. Schwabish, 2008. "The Effects of Earnings Inequality on State Social Spending in the United States," Public Finance Review, , vol. 36(5), pages 588-613, September.
    10. Jo Thori Lind, 2005. "Why is there so little redistribution?," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 31, pages 111-125.

    More about this item

    Keywords

    Welfare state; insurance; redistribution; income inequality;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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