Still a Director

1
Still a Directors Law?On the Political Economy
of Income Redistribution Presentation at the
IBL-IREF Conference on Troppe tasse ma a
vantaggio di chi, Milan, June 18, 1007

• Prof. Dr. Lars P. FeldUniversity Heidelberg,
  ZEW Mannheim, University of St. Gallen
  (SIAW-HSG), CREMA Basel and CESifo Munich

Mikan
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Still a Directors Law? Outline of the
Presentation

• Directors Law Properly Taken
• The Political Economy Rationale
• Income Redistribution and Constitutions
• Some Descriptive Evidence
• Econometric Results
• Conclusions

Milan
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Directors Law Properly Taken

• Does income redistribution by the state run from
  rich to poor or from both, rich and poor to the
  middle income classes?
• Public expenditures are made for the primary
  benefit of the middle classes, and financed with
  taxes which are borne in considerable part by the
  poor and the rich. (Stigler 1970, p.1)
• All public expenditure needs to be considered.
• Education, cultural spending and so on.
• All public revenue needs to be considered.
• A question of budget incidence Fiscal residuum

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The Political Economy Rationale (1)

• The median voter model.
• Middle classes are always part of the minimum
  winning coalition.
• The simple version already only holds with one
  dimensional decisions and single peakedness.
• Under multi-dimensionality it is always better
  for the middle income classes to include a poor
  household than a rich household in the coalition.
• Exploitation of the rich.
• Directors Law proper The middle and the poor
  coalesce against the rich.

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The Political Economy Rationale (2)

• Meltzer and Richard (1981)
• The higher the gap between mean and median
  income, the more redistribution is undertaken.
• Increase in skewness towards high income earners.
• Romer-Roberts
• Regressive taxation, if the median income
  taxpayer is sufficiently productive.
• Limits of redistribution as taxpayers avoid
  taxation and transfers pose adverse incentives.

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The Political Economy Rationale (3)

• Political participation and voter turnout
• High income earners participate more in politics.
• Private provision of public goods
• Potentially also a coalition of rich and poor
  against the middle classes.
• Non-linear taxes
• Rich and the middle classes against the poor.
• Voluntary income redistribution
• More important within social or ethnic groups.
• But also Targeted spending.

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The Political Economy Rationale (4)

• Poorly informed voters and probabilistic voting
• Pork-barrel politics as a different kind of
  targeting.
• Special interest politics.
• Difficult to predict a Directors Law.
• Ideology may induce a Directors Law
• The economic interests of the rich and the poor
  are closely entangled with their ideologies.
• The middle classes are politically much more
  mobile and will benefit from electoral platforms
  framed in their interests.

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Income Redistribution and Constitutions (1)

• Direct vs. Representative Democracy
• Political decision are more in line with median
  voter interests.
• Speaks for validity of Directors Law in direct
  democracy.
• But Issue unbundling via citizen intiatives.
• Like in the private provision of public goods,
  more targeted spending.
• Less redistribution towards the middle income
  classes.

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Income Redistribution and Constitutions (2)

• Presidential vs. Parliamentarian Systems
• Head of parliamentary regime has additional
  bargaining power vis-à-vis the legislature.
• Confidence vote and career concerns.
• Presidents at times of divided government need to
  ensure a broad majority in the legislature.
• Representatives from different electoral
  districts are in charge of agenda-setting in
  committees on taxing and spending.
• More targeted spending and lower taxes in
  presidential systems.

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Income Redistribution and Constitutions (3)

• Plurality rule vs. Proportional Representation
• Spending targeted to districts under plurality
  rule
• Proportional representation is associated with
  multi-party parliaments and the need to form
  coalition governments with more or less diverse
  interests.
• A government needs to win the support of 50 plus
  one voter it needs to rest on a wider basis
  than in the case of plurality rule.
• Broader expenditure programs and in the case of
  income redistribution more general transfer
  schemes under proportional representation.

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Income Redistribution and Constitutions (4)

• Federalism vs. Unitarianism
• Who migrates in competitive federalism?
• If it is the middle classes, Directors Law
  obtains.
• If it is the high income earners, Directors Law
  is restricted.
• Summarizing hypotheses
• Direct democracy Theoretically open.
• Presidential systems and plurality rule more
  difficult to realize Directors Law.
• Competitive federalism Mobile high income
  earners restrict Directors Law.

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Some Descriptive Evidence (1)
Table 2 Income Distribution and Redistribution according to Gini-Coefficients, OECD Countries, 2000 Table 2 Income Distribution and Redistribution according to Gini-Coefficients, OECD Countries, 2000 Table 2 Income Distribution and Redistribution according to Gini-Coefficients, OECD Countries, 2000 Table 2 Income Distribution and Redistribution according to Gini-Coefficients, OECD Countries, 2000 Table 2 Income Distribution and Redistribution according to Gini-Coefficients, OECD Countries, 2000 Table 2 Income Distribution and Redistribution according to Gini-Coefficients, OECD Countries, 2000 Table 2 Income Distribution and Redistribution according to Gini-Coefficients, OECD Countries, 2000 Table 2 Income Distribution and Redistribution according to Gini-Coefficients, OECD Countries, 2000 Table 2 Income Distribution and Redistribution according to Gini-Coefficients, OECD Countries, 2000
Gini coefficients Gini coefficients Gini coefficients Redistribution from Redistribution from Relative importance of transfer types Relative importance of transfer types Relative importance of transfer types
Country Market Disposable Difference Taxes Transfers Pensions Unemployment Benefits Others
Belgium 0.465 0.242 0.223 0.062 0.161 0.107 0.023 0.030
Sweden 0.441 0.223 0.218 0.038 0.180 0.107 0.019 0.055
Netherlands 0.458 0.257 0.202 0.041 0.160 0.088 0.011 0.062
Finland 0.417 0.223 0.194 0.048 0.146 0.087 0.016 0.044
France 0.469 0.292 0.177 0.021 0.157 0.099 0.018 0.039
Denmark 0.412 0.245 0.167 0.036 0.131 0.055 0.024 0.052
Germany 0.421 0.254 0.167 0.047 0.119 0.089 0.006 0.024
UK 0.475 0.323 0.153 0.031 0.121 0.044 0.005 0.073
Norway 0.379 0.235 0.144 0.040 0.104 0.065 0.005 0.043
Australia 0.423 0.297 0.126 0.049 0.077 0.030 0.011 0.036
Canada 0.406 0.290 0.116 0.038 0.078 0.037 0.011 0.030
Switzerland 0.395 0.293 0.102 0.009 0.093 0.078 0.013 0.001
USA 0.447 0.345 0.102 0.046 0.056 0.033 0.002 0.021
Mean 0.431 0.271 0.161 0.039 0.122 0.071 0.013 0.039
Source Luxembourg Income Study, 2004. Source Luxembourg Income Study, 2004. Source Luxembourg Income Study, 2004. Source Luxembourg Income Study, 2004. Source Luxembourg Income Study, 2004. Source Luxembourg Income Study, 2004. Source Luxembourg Income Study, 2004. Source Luxembourg Income Study, 2004. Source Luxembourg Income Study, 2004.
13
Some Descriptive Evidence (2)
Table 3 Poverty Measures and Poverty Reduction in Selected OECD Countries in 2000 Table 3 Poverty Measures and Poverty Reduction in Selected OECD Countries in 2000 Table 3 Poverty Measures and Poverty Reduction in Selected OECD Countries in 2000 Table 3 Poverty Measures and Poverty Reduction in Selected OECD Countries in 2000
Poverty measure Poverty measure Poverty reduction
Country Market incomes Disposable incomes
Belgium 27.7 4.1 23.6
Netherlands 26.7 4.5 22.3
Sweden 25.7 4.4 21.3
Finland 22.2 3.2 19.0
Denmark 24.1 5.6 18.5
UK 25.4 7.3 18.0
France 22.7 5.3 17.4
Germany 21.5 4.4 17.1
Norway 19.3 4.0 15.3
Australia 21.3 8.0 13.3
Switzerland 17.2 5.5 11.8
Canada 19.1 7.6 11.5
USA 20.1 11.6 8.5
Mean 22.5 5.8 16.7

14
Some Descriptive Evidence (3)

• No clear-cut results from the descriptive data
• Early evidence from the 1970s on budget
  incidence supporting Directors Law.
• But Strong assumptions as to the incidence of
  particular spending categories.
• Evidence supporting Meltzer-Richard.
• Democracy leads to more redistribution.
• Plurality rule leads to less welfare spending.
• Presidential systems have less welfare spending.

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Econometric Results (1)
Table 4 Cross Country Regressions of the Gini-Index on Electoral Systems and Forms of Government, OLS, 70 Countries, Averages for the Period 1990 to 1998 Table 4 Cross Country Regressions of the Gini-Index on Electoral Systems and Forms of Government, OLS, 70 Countries, Averages for the Period 1990 to 1998 Table 4 Cross Country Regressions of the Gini-Index on Electoral Systems and Forms of Government, OLS, 70 Countries, Averages for the Period 1990 to 1998 Table 4 Cross Country Regressions of the Gini-Index on Electoral Systems and Forms of Government, OLS, 70 Countries, Averages for the Period 1990 to 1998 Table 4 Cross Country Regressions of the Gini-Index on Electoral Systems and Forms of Government, OLS, 70 Countries, Averages for the Period 1990 to 1998 Table 4 Cross Country Regressions of the Gini-Index on Electoral Systems and Forms of Government, OLS, 70 Countries, Averages for the Period 1990 to 1998 Table 4 Cross Country Regressions of the Gini-Index on Electoral Systems and Forms of Government, OLS, 70 Countries, Averages for the Period 1990 to 1998 Table 4 Cross Country Regressions of the Gini-Index on Electoral Systems and Forms of Government, OLS, 70 Countries, Averages for the Period 1990 to 1998 Table 4 Cross Country Regressions of the Gini-Index on Electoral Systems and Forms of Government, OLS, 70 Countries, Averages for the Period 1990 to 1998
(1) (2) (3) (4) (5) (6) (7) (8)
Log Income 3.067 2.29 3.262 2.45 3.556 2,0 4.033 2.30 3.708 1.99 3.901 2.05 4.191 2.18 4.529 2.17
Enrolment in Primary and Secondary Education 0.185 2.64 0.171 2.45 0.169 2.36 0.204 2.77 0.210 2.81 0.225 2.84 0.217 2.73 0.218 2.71
Log Population 0.043 0.08 -0.071 -0.13 -0.118 -0.19 0.633 0.11 -0.006 -0.01 -0.136 -0.21 -0.627 -0.76 -0.562 -0.67
Proportion of Population of Age 15 to 64 Years -0.589 -2.21 -0.498 -1.85 -0.523 -1.79 -0.269 -0.94 -0.271 -0.93 -0.316 -1.05 -0.218 -0.69 -0.237 -0.73
Proportion of Population above 64 Years -1.837 -6.34 -1.733 -5.79 -1.754 -5.40 -1.964 -5.23 -1.987 -5.22 -1.880 -4.47 -1.869 -4.44 -1.848 -4.33
Presidential Regimes 3.522 1.69 3.635 1.60 4.816 2.08 4.696 2.00 4.637 1.97 4.573 1.94 4.916 1.96
Plurality Rule -0.408 -0.24 -0.538 -0.29 -0.719 -0.39 -0.369 -0.19 -0.118 -0.06 -0.084 -0.04 0.040 0.02
Federal Political Structure 0.226 0.08 -0.622 -0.25 -0.368 -0.14 -0.186 -0.07 -0.135 -0.05 -0.169 0.06
16
Econometric Results (2)
Central Government Expenditureas a Percentage of GDP -0.013 0.05 0.002 0.01 0.005 0.02 -0.091 -0.34 -0.092 -0.35
Central Government Revenueas a Percentage of GDP 0.039 0.18 0.024 0.11 0.015 0.07 0.139 0.55 0.137 0.54
Ethnolinguistic Fractionalization -2.201 -0.55 -3.072 -0.71 -1.890 -0.42 -1.393 -0.30
Gastil Index of Civil Liberties and Political Rights 0.756 0.61 1.352 0.98 1.157 0.79
Trade Openness (Exports plus Imports of Goods and Services Divided by GDP) -0.295 -0.99 -0.028 -0.93
Age of Democracy -2.190 -0.43
Constant 49.197 41.334 40.876 17.938 21.071 18.814 12.006 10.588
Obs. 70 70 68 63 63 63 63 63
Adj. R2 0.595 0.603 0.581 0.617 0.612 0.607 0.607 0.602
F-statistics 21.28 15.95 12.61 10.99 9.89 8.98 8.36 7.65
RMSE 6.633 6.571 6.712 6.085 6.127 6.165 6.166 6.218
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Econometric Results (3)
Table 5 Panel Regressions of the Gini-Index of Primary Income Distribution on Fiscal Decentralization, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 5 Panel Regressions of the Gini-Index of Primary Income Distribution on Fiscal Decentralization, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 5 Panel Regressions of the Gini-Index of Primary Income Distribution on Fiscal Decentralization, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 5 Panel Regressions of the Gini-Index of Primary Income Distribution on Fiscal Decentralization, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 5 Panel Regressions of the Gini-Index of Primary Income Distribution on Fiscal Decentralization, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 5 Panel Regressions of the Gini-Index of Primary Income Distribution on Fiscal Decentralization, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 5 Panel Regressions of the Gini-Index of Primary Income Distribution on Fiscal Decentralization, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 5 Panel Regressions of the Gini-Index of Primary Income Distribution on Fiscal Decentralization, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998
(1) (2) (3) (4) (5) (6) (7)
GDP per Employee 0.001 3.21 0.001 3.42 0.001 4.05 0.001 3.94 0.001 3.84 0.001 4.37 0.001 4.27
Government Edu-cation Spending -0.004 -2.40 -0.001 -0.21 -0.002 -1.34 -0.002 -1.33 0.000 0.18 -0.001 -0.91 -0.001 -0.87
Population Growth in Percent -0.002 -1.50 -0.001 -0.84 -0.000 -0.54 -0.001 -0.64 -0.001 -1.06 -0.001 -0.76 -0.001 -0.89
Expenditure Decentralization -0.001 -5.63 -0.001 -4.96 -0.001 -4.96 -0.001 -6.47 -0.001 -5.70 -0.001 -5.79
Revenue Decentralization (tax rates and bases) -0.001 -4.60 -0.000 -1.08 -0.000 -1.04 -0.001 -4.64 -0.000 -1.30 -0.000 -1.27
Revenue Decentralization (tax rates and bases or joint taxation) -0.001 -3.51 0.001 1.19 -0.001 -3.19 0.002 1.52
Revenue Decentralization (tax rates and bases, joint taxation or fiscal equalization) -0.002 -1.70 -0.002 -2.00
Openness -0.195 -3.15 -0.171 -2.80 -0.182 -2.99
Constant 0.395 0.428 0.432 0.435 0.439 0.441 0.445
Adj. R2 0.177 0.484 0.509 0.513 0.503 0.523 0.530
SER 0.032 0.026 0.025 0.025 0.025 0.025 0.024
F-statistic 3.517 11.016 11.606 11.353 11.391 11.796 11.650
For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4.
18
Econometric Results (4)
Table 6 Panel Regressions of the Gini-Index of Disposable Income Distribution on Fiscal Decentralization, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 6 Panel Regressions of the Gini-Index of Disposable Income Distribution on Fiscal Decentralization, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 6 Panel Regressions of the Gini-Index of Disposable Income Distribution on Fiscal Decentralization, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 6 Panel Regressions of the Gini-Index of Disposable Income Distribution on Fiscal Decentralization, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 6 Panel Regressions of the Gini-Index of Disposable Income Distribution on Fiscal Decentralization, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 6 Panel Regressions of the Gini-Index of Disposable Income Distribution on Fiscal Decentralization, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 6 Panel Regressions of the Gini-Index of Disposable Income Distribution on Fiscal Decentralization, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 6 Panel Regressions of the Gini-Index of Disposable Income Distribution on Fiscal Decentralization, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998
(1) (2) (3) (4) (5) (6) (7)
GDP per Employee 0.002 3.86 0.002 4.71 0.003 6.92 0.002 6.87 0.002 6.88 0.003 9.58 0.003 10.05
Government Edu-cation Spending -0.011 -5.50 -0.013 -6.71 -0.018 -10.28 -0.018 -10.65 -0.011 -6.82 -0.016 -10.87 -0.015 -11.76
Population Growth in Percent 0.0010.80 0.0000.12 0.001 0.95 0.001 0.74 -0.001 -0.54 0.000 0.33 -0.000 -0.07
Expenditure Decentralization 0.001 4.47 0.001 6.87 0.001 7.17 0.000 1.60 0.001 4.04 0.001 4.26
Revenue Decentralization (tax rates or bases) 0.000 0.57 0.001 6.55 0.001 6.91 0.000 0.83 0.001 7.28 0.001 8.09
Revenue Decentralization (tax rates or bases or joint taxation) -0.002 -8.94 0.004 2.94 -0.001 -9.63 0.005 5.15
Revenue Decentralization (tax rates or bases, joint taxation or fiscal equalization) -0.006 -4.29 -0.007 -6.71
Openness -0.708 -10.22 -0.639 -10.87 -0.672 -12.47
Constant 0.253 0.216 0.226 0.235 0.253 0.259 0.272
Adj. R2 0.169 0.282 0.470 0.508 0.510 0.653 0.711
SER 0.037 0.034 0.029 0.028 0.280 0.024 0.022
F-statistic 3.378 5.208 10.081 11.171 11.655 19.513 24.226
For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4.
19
Econometric Results (5)
Table 7 Panel Regressions of Fiscal Redistribution Measured in Gini-Points on Fiscal Decentralization without Controlling for the Primary Income Distribution, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 7 Panel Regressions of Fiscal Redistribution Measured in Gini-Points on Fiscal Decentralization without Controlling for the Primary Income Distribution, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 7 Panel Regressions of Fiscal Redistribution Measured in Gini-Points on Fiscal Decentralization without Controlling for the Primary Income Distribution, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 7 Panel Regressions of Fiscal Redistribution Measured in Gini-Points on Fiscal Decentralization without Controlling for the Primary Income Distribution, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 7 Panel Regressions of Fiscal Redistribution Measured in Gini-Points on Fiscal Decentralization without Controlling for the Primary Income Distribution, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 7 Panel Regressions of Fiscal Redistribution Measured in Gini-Points on Fiscal Decentralization without Controlling for the Primary Income Distribution, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 7 Panel Regressions of Fiscal Redistribution Measured in Gini-Points on Fiscal Decentralization without Controlling for the Primary Income Distribution, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 7 Panel Regressions of Fiscal Redistribution Measured in Gini-Points on Fiscal Decentralization without Controlling for the Primary Income Distribution, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998
(1) (2) (3) (4) (5) (6) (7)
GDP per Employee -0.000 -0.83 -0.001 -2.40 -0.001 -3.61 -0.001 -3.45 -0.001 -3.60 -0.002 -4.74 -0.001 -4.65
Government Education Spending 0.007 2.75 0.013 7.36 0.016 9.52 0.016 9.65 0.011 7.27 0.014 9.35 0.014 9.57
Population Growth in Percent -0.003 -1.73 -0.001 -0.84 -0.001 -1.47 -0.001 -1.33 -0.000 -0.43 -0.001 -1.05 -0.001 -0.83
Expenditure Decentralization -0.002 -9.78 -0.002 -11.58 -0.002 -11.79 -0.001 -7.70 -0.001 -9.40 -0.001 -9.61
Revenue Decentralization (tax rates or bases) -0.001 -4.52 -0.002 -7.78 -0.002 -7.97 -0.001 -5.18 -0.001 -8.12 -0.001 -8.46
Revenue Decentralization (tax rates or bases or joint taxation) 0.001 6.18 -0.002 -1.93 0.001 5.94 -0.003 -3.05
Revenue Decentralization (tax rates or bases, joint taxation or fiscal equalization) 0.004 2.84 0.004 3.95
Openness 0.513 7.71 0.467 7.49 0.489 8.07
Constant 0.143 0.213 0.206 0.020 0.185 0.182 0.173
Adj. R2 0.100 0.547 0.612 0.624 0.641 0.689 0.709
SER 0.045 0.030 0.028 0.028 0.027 0.025 0.024
F-statistic 1.018 13.932 17.176 17.338 19.329 22.828 24.005
For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4.
20
Econometric Results (6)
Table 8 Panel Regressions of Fiscal Redistribution Measured in Gini-Points on Fiscal Decentralization Controlling for the Primary Income Distribution, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 8 Panel Regressions of Fiscal Redistribution Measured in Gini-Points on Fiscal Decentralization Controlling for the Primary Income Distribution, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 8 Panel Regressions of Fiscal Redistribution Measured in Gini-Points on Fiscal Decentralization Controlling for the Primary Income Distribution, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 8 Panel Regressions of Fiscal Redistribution Measured in Gini-Points on Fiscal Decentralization Controlling for the Primary Income Distribution, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 8 Panel Regressions of Fiscal Redistribution Measured in Gini-Points on Fiscal Decentralization Controlling for the Primary Income Distribution, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 8 Panel Regressions of Fiscal Redistribution Measured in Gini-Points on Fiscal Decentralization Controlling for the Primary Income Distribution, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 8 Panel Regressions of Fiscal Redistribution Measured in Gini-Points on Fiscal Decentralization Controlling for the Primary Income Distribution, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998 Table 8 Panel Regressions of Fiscal Redistribution Measured in Gini-Points on Fiscal Decentralization Controlling for the Primary Income Distribution, Pooled Regressions with Time Fixed Effects, 13 OECD Countries, 1981 to 1998
(1) (2) (3) (4) (5) (6) (7)
GDP per Employee -0.002 -3.33 -0.001 -3.35 -0.002 -5.47 -0.002 -5.49 -0.002 -5.54 -0.002 -8.16 -0.002 -8.74
Government Education Spending 0.010 5.12 0.013 7.68 0.017 10.88 0.017 11.24 0.011 7.90 0.015 11.71 0.015 12.66
Population Growth in Percent -0.001 -1.03 -0.001 -0.64 -0.001 -1.36 -0.001 -1.16 0.000 0.017 -0.001 -0.76 -0.000 -0.36
Gini Index of Primary Income Distribution 0.828 11.08 0.319 4.16 0.446 6.43 0.476 7.04 0.450 6.86 0.559 9.70 0.605 11.32
Expenditure Decentraliza-tion -0.001 -8.01 -0.002 -9.92 -0.001 -10.12 -0.001 -5.03 -0.001 -7.00 -0.001 -7.13
Revenue Decentralization (tax rates or bases) -0.001 -3.25 -0.001 -7.97 -0.001 -8.29 -0.000 -3.40 -0.001 -8.80 -0.001 -9.62
Revenue Decentralization (tax rates or bases or joint taxation) 0.001 8.02 -0.003 -2.69 0.001 8.96 -0.004 -4.97
Revenue Decentralization (tax rates orbases, joint taxation or fiscal equalization) 0.005 3.92 0.006 6.43
Openness 0.601 9.71 0.563 10.57 0.599 12.17
Constant -0.185 0.076 0.013 -0.008 -0.012 -0.064 -0.096
Adj. R2 0.352 0.578 0.672 0.692 0.703 0.781 0.815
SER 0.036 0.029 0.026 0.025 0.0245 0.021 0.019
F-statistic 7.073 15.053 21.144 22.245 24.292 34.816 41.214
For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4. For Notes see Table 4.
21
Econometric Results (7)
Table 9 Swiss Cantonal and Local Expenditure, Revenue, Taxes, and Welfare Expenditure per Capita, 1980 1998, 494 Observations Table 9 Swiss Cantonal and Local Expenditure, Revenue, Taxes, and Welfare Expenditure per Capita, 1980 1998, 494 Observations Table 9 Swiss Cantonal and Local Expenditure, Revenue, Taxes, and Welfare Expenditure per Capita, 1980 1998, 494 Observations Table 9 Swiss Cantonal and Local Expenditure, Revenue, Taxes, and Welfare Expenditure per Capita, 1980 1998, 494 Observations Table 9 Swiss Cantonal and Local Expenditure, Revenue, Taxes, and Welfare Expenditure per Capita, 1980 1998, 494 Observations
(1) (2) (3) (4)
Public Expenditure Public Revenue Tax Revenue Welfare Expenditure
Direct democracy -0.034 -0.033 -0.041 -0.165
(2.17) (2.34) (3.33) (6.89)
Fiscal decentralization -1.110 -0.942 0.041 -0.489
(3.74) (3.47) (0.21) (1.10)
Tax competition -0.074 -0.107 -0.209 -0.082
(1.36) (2.15) (7.00) (1.01)
Fiscal constraints -0.019() -0.007 0.011 -0.050
(1.74) (0.75) (2.06) (3.51)
22
Econometric Results (8)
Table 10 Inequality and Redistribution in Swiss Cantons, 1981 1997, 208 Observations (Gini-Coefficients in Percentage Points) Table 10 Inequality and Redistribution in Swiss Cantons, 1981 1997, 208 Observations (Gini-Coefficients in Percentage Points) Table 10 Inequality and Redistribution in Swiss Cantons, 1981 1997, 208 Observations (Gini-Coefficients in Percentage Points) Table 10 Inequality and Redistribution in Swiss Cantons, 1981 1997, 208 Observations (Gini-Coefficients in Percentage Points) Table 10 Inequality and Redistribution in Swiss Cantons, 1981 1997, 208 Observations (Gini-Coefficients in Percentage Points)
(1) (2) (3) (4)
Pre-Tax Gini-Coefficient Post-Tax Gini-Coefficient Difference Difference
Pre-Tax Gini-Coefficient 0.073
(6.62)
Direct democracy -1.780 -1.647 -0.133 -0.004
(6.64) (6.66) (5.96) (0.19)
Fiscal decentralization -4.983 -4.43 -0.524 -0.131
(0.86) (0.83) (1.10) (1.02)
Tax competition 1.702() 1.558() 0.141 0.013
(1.94) (1.93) (1.98) (0.43)
Fiscal constraints -0.551 -0.503 -0.048 -0.007
(3.05) (3.02) (3.19) (0.89)
23
Econometric Results (9)
Table 11 Inequality and Redistribution, 1992, 4178 Observations Table 11 Inequality and Redistribution, 1992, 4178 Observations Table 11 Inequality and Redistribution, 1992, 4178 Observations Table 11 Inequality and Redistribution, 1992, 4178 Observations Table 11 Inequality and Redistribution, 1992, 4178 Observations Table 11 Inequality and Redistribution, 1992, 4178 Observations
(1) (2) (3) (4a) (4b)
Pre-Tax HouseholdIncome Post-Tax HouseholdIncome Difference Difference(predicted gross income) Difference(original gross income)
10th quantile -511.451 (0.39) -881.204 (0.65) -293.799 (2.55) -324.958 (2.84) -309.271 (2.65)
20th quantile -1108.593 (0.97) -898.465 (0.91) -309.411 (2.62) -272.174 (2.27) -382.801 (3.64)
30th quantile -2179.545 (1.57) -1449.298 (0.62) -358.607 (2.76) -284.219 (2.24) -393.587 (4.35)
50th quantile -1857.755 (0.86) -1645.376 (1.20) -405.208 (2.42) -108.648 (0.58) -251.039 (0.55)
70th quantile -2156.702 (0.38) -941.291 (0.25) -645.401 (2.68) -308.565 (1.35) -182.899 (0.88)
80th quantile -3609.568 (0.81) -1599.494 (0.08) -904.024 (3.19) -564.656 (2.52) -129.624 (0.79)
90th quantile -3355.007 (0.87) -1311.208 (0.44) -1129.295 (2.47) -727.442 (1.50) -23.910 (0.13)
24
Conclusions

• Does redistribution follow a Directors Law?
• Arguments from the political economy of income
  redistribution do not allow to draw that
  conclusion Too diverse arguments.
• Descriptive evidence also ambiguous.
• Evidence on budget incidence Not reliable.
• Presidential systems less welfare spending and
  more unequal distribution of disposable income.
• Plurality systems less welfare spending, but no
  significant effect on income distribution.

Milan
25
Conclusions

• Direct democracy
• lower welfare spending
• lower broad-based taxes
• less income redistribution only when primary
  income distribution not too unequal.
• Fiscal competition
• Restrictions on Directors Law
• Occurrence of Directors Law depends on the
  political system in place.

Milan