Income distribution, government transfers, and the problem of unequal influence
Date of Original Version
Several papers in the literature have posited that inequality hinders growth by leading to high distorting taxes and transfers. We retest whether inequality and transfers are positively linked, using several alternative definitions and data sets including new income data assembled by the World Bank. We correct an error in a result of Persson and Tabellini [Persson, T., Tabellini, G., 1994. Is inequality harmful for growth? American Economic Review, 84, 600-621]; we show that the relationship across mixed country samples is, if anything, negative; and we confirm Perotti's [Perotti, R., 1996. Growth, income distribution, and democracy: what the data say, Journal of Economic Growth, 1, 149-187.] finding that this relationship weakens or disappears when population structure (proportion over 65) is controlled for. We also introduce two alternative theories of the distribution-transfers link that allow political influence to be a function of income.
European Journal of Political Economy
Bassett, William F., John P. Burkett, and Louis Putterman. "Income distribution, government transfers, and the problem of unequal influence." European Journal of Political Economy 15, 2 (1999): 207-228. doi:10.1016/S0176-2680(99)00004-X.