Branko Milanovic

The median-voter hypothesis, income inequality, and income redistribution: an empirical test with the required data

The median voter hypothesis has been central to an extensive literature on consequences of income distribution. For example, it has been proposed that greater inequality is associated with lower growth, because of the greater redistribution that is sought by the median voter when income distribution is less equal. There have however been no proper tests of the median-voter hypothesis concerning redistribution, because of previous absence of data on factor income distribution (that is, incomes before taxes and transfers) across households, and thus on the gains by poorer households from redistribution. The study reported in this paper is based on the required data, with 79 observations drawn from household budget surveys from 24 democracies. The results strongly support the conclusion that countries with greater inequality of factor income redistribute more to the poor. This is so even when we control for the share of the elderly in the population and for pension transfers. The evidence that the median-voter hypothesis adequately describes the collective-choice mechanism is however considerably weaker. Although middle-income groups gain more/or lose less through redistribution in countries where initial (factor) income distribution is more unequal, this regularity is all but lost when, by excluding pensions, we look only at explicit redistributive social transfers from which the middle classes contemporaneously gain little.This leaves us searching for alternative explanations: do middle-classes gain from transfers in the long-run even if not contemporeneously?, or is the median voter hypothesis, based on direct democracy, a proper representation of the the mechanisms of collective-decision making in representative democracy?

The Two Faces of Globalization: Against Globalization as We Know it

The paper shows that the current view of globalization as an automatic and benign force is flawed: it focuses on only one, positive, face of globalization while entirely neglecting a malignant one. The two key historical episodes that are adduced by the supporters of the “globalization as it is” (the Halcyon days of the 1870-1913, and the record of the last two decades of development) are shown to be misinterpreted. The “Halcyon days” were never Halcyon for those who were “globalized” through colonization since colonial constraints prevented them from industrializing. The record of the last two decades (1978- 1998) is shown to be almost uniformly worse than that of the previous two (1960-78).

Pre‐Industrial Inequality

Is inequality largely the result of the Industrial Revolution? Or, were pre-industrial incomes as unequal as they are today? This article infers inequality across individuals within each of the 28 pre-industrial societies, for which data were available, using what are known as social tables. It applies two new concepts: the inequality possibility frontier and the inequality extraction ratio. They compare the observed income inequality to the maximum feasible inequality that, at a given level of income, might have been extracted by those in power. The results give new insights into the connection between inequality and economic development in the very long run.

A simple way to calculate the Gini coefficient, and some implications

Abstract The paper proposes a new, and a much simpler, way to calculate the Gini coefficient. The existence of a relationship between linear (concave or convex) Pens income parade, and specific values of the Gini coefficient is derived.

GLOBAL INCOME INEQUALITY: WHAT IT IS AND WHY IT MATTERS?

The paper presents a nontechnical summary of the current state of debate on the measurement and implications of global inequality (inequality between citizens of the world). It discusses the relationship between globalization and global inequality. And it shows why global inequality matters and proposes a scheme for global redistribution.

Poverty, Inequality, and Social Policy in Transition Economies

In examining what happens to poverty and income inequality during the early period of transition to a market economy, the author covers the period up to 1993. His analysis includes almost all transition economies that were not affected by wars, blockades, or embargoes. (In economies so affected, the intrinsic issues of transition are overshadowed by more basic issues of war or quasi-war economy and survival). The two key issues of social policy in transition economies are pension reform and better targeting of social assistance. Pensions represent 70 to 80 percent of cash social expenditures. No reduction of current levels of social spending (which is unsustainable) can be envisaged without pension reform. Better targeting of social assistance is needed because many universally or enterprise-provided benefits have been terminated, poverty has increased, and social programs lack funding. If poverty is on the rise and money is scarce, better targeting is the only option.

Half a world: regional inequality in five great federations

The paper studies regional (spatial) inequality in the five most populous countries in the world: China, India, the United States, Indonesia, and Brazil in the period 1980-2000. They are all federations or quasi-federations composed of entities with substantial economic autonomy. Two types of regional inequalities are considered: Concept 1 inequality, which is inequality between mean incomes (GDP per capita) of states/provinces, and Concept 2 inequality, which is inequality between population-weighted regional mean incomes. The first inequality speaks to the issue of regional convergence, the second, to the issue of overall inequality as perceived by citizens within a nation. All three Asian countries show rising inequality in terms of both concepts in the 1990s. Divergence in income outcomes is particularly noticeable for the most populous states/provinces in China and India. The United States, where regional inequality is the least, shows further convergence. Brazil, with the highest level of regional inequality, displays no trend. A regression analysis fails to establish robust association between the usual macroeconomic variables and the two types of regional inequality.

An Estimate of Average Income and Inequality in Byzantium Around Year 1000

Using recent economic statistics from the peak period of Byzantine political and economic influence, we estimate the average income around the year 1000 to have been about 6 nomismata per capita per annum. This is then translated into current prices using two independent methods. They both yield an estimate around

Reform and Inequality During the Transition: An Analysis Using Panel Household Survey Data, 1990-2005

PPP 640-720 in 1990 international prices. It is argued that this amount is some 20 percent below an average estimate of Roman incomes at the time of Augustus (around year one). Assuming that most of income differences in Byzantium were due to the differences in average incomes between social classes, we estimate the Gini coefficient to have been in the range between 40 and 45.

Globalization and goals: does soccer show the way?

Using for the first time household survey data from 26 post-Communist countries, covering the period 1990-2005, this paper examines correlates of unprecedented increases in inequality registered by most of the economies. The analysis shows, after controlling for country fixed effects and type of survey used, that economic reform is strongly negatively associated with the income share of the bottom decile, and positively with the income shares of the top two deciles. However, breaking economic reform into its component parts, the picture is more nuanced. Large-scale privatization and infrastructure reform (mostly consisting of privatization and higher fees) are responsible for the pro-inequality effect; small-scale privatization tends to raise the income shares of the bottom deciles. Acceleration in growth is also pro-rich. But democratization is strongly pro-poor, as is lower inflation. Somewhat surprisingly, the analysis finds no evidence that greater government spending as share of gross domestic income reduces inequality.