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Do more unequal countries redistribute more? does the median voter hypothesis hold?, Volume 1
 
Author:Milanovic, Branko; Date Stored:2000/02/03
Document Date:1999/12/31Document Type:Policy Research Working Paper
SubTopics:Environmental Economics & Policies; Income; Economic Theory & Research; Inequality; Services & Transfers to Poor; Poverty Impact Evaluation; Safety Nets and TransfersLanguage:English
Major Sector:(Historic)Social ProtectionReport Number:WPS2264
Sub Sectors:Other Social ProtectionCollection Title:Policy, Research working paper ; no. WPS 2264
Volume No:1  

Summary: The median voter hypothesis is important to endogenous growth theories because it provides the political mechanisms through which voters in more unequal countries re-distribute a greater proportion of income and thus (it is argued), by blunting incentives, reduce the country's growth rate. But he hypothesis was never properly tested because of lack of data on the distribution of (pre-tax and transfer) factor income across households, and hence on the exact amount of gain by the poorest quintile of poorest half. The author tests the hypothesis using t9 observations drawn from household budget surveys from 24 democracies. The data strongly support the hypothesis that countries with more unequal distribution of factor income redistribute more in favor of the poor - even when the analysis controls for the older people's share in total population (that is, for pension transfers). The evidence on the median voter hypothesis is much weaker. The author does find that middle-income groups gain more (or lose less) through redistribution in countries where initial (factor) income distribution is more unequal. This regularity evaporates, however, when pensions are dropped from social transfers and the focus is strictly on the more re-distributive social transfers.

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