Pablo Beramendi

Social Democracy Constrained: Indirect Taxation in Industrialized Democracies

The determinants of the welfare state have received a great deal of attention in the comparative political economy literature. An analysis of the role that indirect taxation plays in the politics of advanced industrial societies is, however, missing. This article demonstrates that a full understanding of the links between redistribution, social democracy and corporatism is impossible without a closer look at indirect taxation. Conventional wisdom is questioned and it is shown that social democratic governments in corporatist environments find themselves in a paradoxical situation. They need to support the welfare state by relying upon a fundamentally regressive policy instrument: indirect taxation. It is also shown that social democratic governments can minimize the use of consumption taxes as part of their redistributive strategy only in non-corporatist settings. In exploring these issues, this article illuminates alternative routes for the pursuit of equality in a context of declining corporatist arrangements. The demand for redistribution is fairly inelastic across industrialized democracies. Even when social expenditures become very expensive, the demand for them decreases with great difficulty. 1 A cursory examination of fiscal policy across OECD (Organization for Economic Co-operation Development) governments reveals a striking fact: the countries more often ruled by social democratic parties are also characterized by the highest tax burden on consumption income and the highest levels of welfare state effort throughout the 1965–95 period. If taxes on consumption are seen as a regressive fiscal device applied to general consumption goods (rather than luxury goods), this pattern poses a puzzle for partisanship theory. Social democratic parties are assumed to protect the interests of citizens in the bottom half of the income distribution, 2 and yet they seem to make ample use of a tool that clearly undermines this goal. How can we explain the coexistence of large redistributive efforts on the expenditure side with the use of regressive tools on the revenue side?

Inequality and the Territorial Fragmentation of Solidarity

A long tradition of research has shown decentralized political structures as an important cause behind lower levels of redistribution and higher levels of inequality. This article offers an alternative interpretation of the association between fragmented fiscal structures and higher levels of inequality. I argue that the distributive effects of decentralization depend on the preexisting territorial patterns of inequality. Therefore, the political choice between alternative fiscal structures is largely driven by their expected distributive consequences. As a result, the territorial structure of inequality becomes an important factor to explain why some fiscal structures are more integrated than others. Two mechanisms link regional income distributions and preferences about the decentralization of redistributive policy: differences in the demand for redistribution associated with interregional income differences, and differences in the demand for social insurance associated with the incidence of labor market risks. I test the argument using a data set of fourteen countries in the Organization for Economic Cooperation and Development (OECD) over the period 1980–2000. In addition, I illustrate the potential of the approach by analyzing why social solidarity remains territorially fragmented in the European Union despite the fact that it has a common currency and a common market.Previous versions of this article were presented in seminars at Cornell University, Syracuse University, Duke University, and the 2005 APSA meetings. I benefited from comments in all these events. In addition, I thank Christopher Anderson, Tony Atkinson, Neal Beck, Carles Boix, Matt Cleary, Thomas R. Cusack, Alberto Diaz-Cayeros, GA¶sta Esping-Andersen, Kai Konrad, Mitchell Orenstein, Jonas Pontusson, Adam Przeworski, Jonathan Rodden, David Rueda, David Soskice, Ernesto Stein, Duane Swank, Daniel Treisman, Brian Taylor, Michael Wallerstein, and Erik Wibbels for their very helpful comments on earlier versions. Krishna Ayyangar provided excellent research assistance. Finally, I want to thank Lisa Martin and two anonymous reviewers for their very helpful suggestions. Financial support from the Juan March Institute, Nuffield College (Oxford), the Wissenschaftszentrum Berlin and the Center for Policy Research (Syracuse University) is gratefully acknowledged. The usual disclaimer applies.

Left Parties, Poor Voters, and Electoral Participation in Advanced Industrial Societies

Although income inequality is an important normative issue for students of democratic politics, little is known about its effects on citizens’ electoral participation. The authors develop a formal model of the incentives for left parties to mobilize lower income voters. It posits that countries’ income distributions and competition on the left provide different incentives for left parties to mobilize lower income voters. In the absence of political competition, higher levels of income inequality reduce the incentives of dominant left parties to target lower income voters. However, competition on the left creates incentives for a dominant left party to mobilize lower income voters, thus counteracting the negative impact of inequality on parties’ incentives to target them. As a consequence, the negative association between inequality and turnout at the aggregate level is muted by the presence of several parties on the left side of the political spectrum. Using aggregate data on elections in Organisation for Economic Co-operation and Development countries between 1980 and 2002 and election surveys collected in the second wave of the Comparative Study of Electoral Systems project, the authors find strong and consistent support for their model.

Who Gives, Who Gains? Progressivity and Preferences

The extent to which popular support for the welfare state depends on income varies greatly across nations and policy domains. We argue and show formally that these variations—largely overlooked yet essential to understanding the politics of redistribution—reflect in part the design of tax and transfer policies in terms of progressivity. When progressivity is high, politics is perceived by income groups as a zero sum game and conflicts over who gets what intensify. When progressivity is low, and tax contributors and benefit recipients overlap, redistributive struggles become politically less salient. We test these predictions both across nations and across policy domains within a sample of advanced industrial democracies. Our findings indicate that the progressivity of the tax and transfer system is a major determinant of the predictive power of income on preferences for redistribution.

“The Behavioral Foundations of Social Politics: Evidence from Surveys and a Laboratory Democracy”

The dominant theoretical approaches in the comparative political economy of the welfare state provide alternative accounts for why some governments spend more on social policies than others. In the first, poor voters seek to increase their current income by taxing the rich, and social policy serves to redistribute income from the rich to the poor. In the second account, voters seek social insurance against future job loss, and social policy serves as an insurance mechanism rather than a redistributive one. Both of these accounts share the assumption that voters can clearly distinguish between the redistributive and insurance elements of public policy and, therefore, that individual-level characteristics (income, labor market risks) systematically shape preferences over social policy. Our goal is to examine the soundness of that behavioral assumption. We do so with a laboratory experiment that involves economic production, voting on taxation and fiscal transfers. We treat subjects with social policies that vary in their level of redistribution and insurance to examine how this impacts their preferred tax rate. We complement the experimental evidence with data from original survey questions that assess voters’ knowledge of the distributive characteristics of different social policies in the U.S. Evidence from both settings suggest only marginal support for behavioral underpinnings of the standard insurance model, particularly as the empirical setting more closely approximates the real world.

The Origins of Dualism

From Spain and Greece to Brazil and South Africa, dualized labor markets are a worldwide phenomenon. In many countries, workers are divided between those with permanent contracts that include valuable benefits and extensive labor market protections and those who work under contingent contracts or no contracts at all. This latter group receives few or no labor market protections and lower levels of social benefits. They are the worlds labor market outsiders. Recent research has suggested that this pool of outsiders has important implications for the nature of democratic politics in the twenty-first century, an argument that is perfectly in line with the core idea of this book, namely, that coalitional alignments among different labor market groups are at the heart of postindustrial reform strategies. Yet the extent of dualization varies hugely across countries. Data on the size of the informal sector around the world (from Schneider et al. 2010) show that while there is clearly a negative association between the wealth of societies and the extent of dualization, there is also huge variation both within and across rich and developing nations. In the OECD context, the process of dualization has been linked to a number of political and economic processes: increasing competition in manufacturing, the rise of the service sector, the decline of unionization, political choices by Left governments, and others. Echoes of these arguments are present in work on developing countries, where dualization is closely linked to the informal sector and has received a lot of attention from economists and sociologists (if not political scientists). Indeed, a long tradition of models in development economics emphasize the stark income and productivity gaps inherent in “dual economies” and the uneven growth that characterizes broad swaths of the developing world (Rosenstein-Rodan 1943; Ray 2010). Yet while all of these arguments emphasize important features of dualization, they often focus on the consequences rather than the causes of labor market dualism.

Taxing Work: Some Political and Economic Aspects of Labor Income Taxation

This paper examines the development of tax regimes across the OECD countries in the latter part of the 20th century. It pays particular attention to taxes on labor income. A number of results emerge from this examination. First, not only do taxes on labor income represent a major drain on private households; they have become the mainstay of many of these countries’ public sector finances. Second, taxes on labor income, and not taxes on capital, appear to be the preferred instrument of finance for those economic and political interests that advocate and support a strong (and thereby expensive) welfare state. There is little “free lunch” to be had in these welfare states; if anything, “socialism in one class” seems to be the rule. Third, while the effort at financing the welfare state this way comes at cost in terms of loss in employment, the magnitude of such loss is inversely related to the degree of wage coordination in the labor market.

Comparing Modes and Samples in Experiments: When Lab Subjects Meet Real People

In this essay we assess the internal and external validity of experiments with online subjects. The assessments are based on tax compliance experiments in which subjects earn real money, are subject to a tax, and can lie about their earnings. We identify the mode effects that affect internal validity by comparing treatment effects in lab and online versions of the experiments. Secondly, we compare the treatment effects across different online (MTurk and U.K. CESS Online) and lab subject pools to determine whether these might affect the external validity of the experimental results.