The Political Economy of Market Inequalities

• In Event: Preferences for Redistribution and Representation

Abstract

The paradoxical nature of the relationship between pre-tax and transfer inequality and redistribution is well known: As routinely stated by the Robin Hood Paradox, the degree of pre-tax and transfer inequality is inversely related to the scope of redistribution. To complicate things further, this relationship seems to be contingent on the specific measure of pre-tax and transfer inequality: it holds for wages but not so clearly for market income. In this paper, we explore a mechanism linking the structure of fiscal policy and pretax inequality largely overlooked by the literature: the second order effects of taxes and transfers. By reshaping the expectations and behavior of market actors, taxes and transfers differentially affect the various distributions of pre-tax and transfer incomes. We create high-quality panel data capturing inequality in wages, market income, and disposable income for 18 advanced industrialized countries spanning 1980 to 2010. We specify models accounting for both time-constant and time-varying confounding and explore how and why different tax structures condition the distributions of wages and market income.

Authors

• Daniel Stegmueller, Duke University

• Pablo Beramendi, Duke University