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  • Print publication year: 2008
  • Online publication date: January 2010

17 - EARNINGS INEQUALITY AND WELFARE SPENDING: A DISAGGREGATED ANALYSIS

Summary

Introduction

Governments collect and spend on average around 45 percent of GDP in advanced industrial societies, and about half of government spending goes to fund the various expenditures on transfer payments and services that constitute what is commonly called the welfare state. Perhaps the most common view of welfare spending is that these policies are the outcome of a long political struggle in which workers and their allies used the power of the ballot box to obtain some redress for the inequalities generated by the market. In the words of Huber and Stephens: “The struggle of welfare states is a struggle of distribution, and thus the organizational power of those standing to benefit from redistribution, the working and lower middle classes, is crucial.” Other scholars have emphasized the political influence of the beneficiaries of welfare spending who are outside the labor market, such as the elderly. But whether the key groups are defined by class position, income, or age, most scholars have viewed welfare policies in redistributive terms.

The redistributive view of welfare policy, as formalized in a series of papers by Romer, Roberts, and Meltzer and Richard, implies that higher inequality of market incomes generates higher levels of political support for redistributive policies. The basic intuition is that low-income earners have more to gain and less to lose than do persons with high incomes from expansions of welfare spending. Thus, the poorer the majority of voters relative to the average income, the greater the expected support for welfare expenditures.

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