The present paper estimates the effects of welfare interventions on income inequality. We propose a the- oretical model showing that welfare policies follow the median voter constituency regardless of whether governments are center-left or center-right in the majority electoral system, whereas large diferences exist between center-left and center- right coalitions in the proportional representation system. We exploit these differences in the mechanisms of welfare expenditure to estimate their elasticities on income inequality and find that a 1% increase in government spending reduces the Gini income index by half a percentage point. This result is robust under different compositions of expenditure, alternative imputation model specifications and falsification tests.

Revisiting the relationship between welfare spending and income inequality in OECD countries

d'Agostino, Giorgio;PROCIDANO, Isabella
2016-01-01

Abstract

The present paper estimates the effects of welfare interventions on income inequality. We propose a the- oretical model showing that welfare policies follow the median voter constituency regardless of whether governments are center-left or center-right in the majority electoral system, whereas large diferences exist between center-left and center- right coalitions in the proportional representation system. We exploit these differences in the mechanisms of welfare expenditure to estimate their elasticities on income inequality and find that a 1% increase in government spending reduces the Gini income index by half a percentage point. This result is robust under different compositions of expenditure, alternative imputation model specifications and falsification tests.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10278/3682354
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