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

Giorgio d'Agostino, Luca Pieroni and Isabella Procidano

MPRA Paper from University Library of Munich, Germany

Abstract: The present paper estimates the effects of welfare interventions on income inequality. We propose a theoretical 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 differences 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.

Keywords: Welfare policies; Electoral rules; Income inequality; Instrumental variable approach; OECD countries (search for similar items in EconPapers)
JEL-codes: C26 E62 H23 H53 (search for similar items in EconPapers)
Date: 2016-06-15
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:72020

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