Median voter and power resources revisited: a composite model of inequality

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThis paper explains redistribution and income inequality by revisiting traditional approaches. First, despite the popularity of two dominant theories, the median voter hypothesis (the Meltzer-Richard model) and power resources theory, they are thought to have contrasting predictions and have seldom been incorporated under a single framework. We develop a composite model of inequality by accommodating their core arguments. This study also analyzes stages of inequality formation, such as market wage inequality and redistribution, and adds in a dynamic component to the model, completing the cycle of inequality. The model is supported empirically with data from 18 OECD countries from 1970 to 2006. We demonstrate the joint relevance and significance of the two theories, showing that they are not necessarily mutually exclusive.. * I would like to thank Hugh Ward for comments and suggestions on previous drafts of this paper. 2This paper endeavors to explain income inequality by looking at wage distribution and the extent of redistribution, measured as reduction in inequality, which are the two factors accounting for disposable (net) income inequality.1 To do that, we incorporate power resources theory and median voter hypothesis under a single framework. The intuition behind choosing these two theories, besides their obvious significance in the literature, is based on their inherently political nature and pertinence to the democratic status of a regime. The decisive voter in the median voter hypothesis is only meaningful (for the purpose here) in a democratic setting.Democracy also lowers the cost of participation for labor, and the freedom of association further enables workers to cumulate power resources (Schumpeter 1942;Rodrik 1998). It is apparent that both theories hinge on the ever-changing political climate, unlike other relatively static socioeconomic or structural explanations of redistribution and inequality.There is another important reason to combine the two approaches. When a particular theory is focused over the other, one makes the implicit assumption that the two theories operate somewhat independently. However, as we shall see below, not only do the two theories overlap, but they are also causally related. Tests on the median voter hypothesis always focus on its direct effect on redistribution. It is seldom noted or tested that the position of the median voter can affect leftist electoral performa...

Chinese imports and income inequality: evidence from six East Asian economies

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