August 03, 2005

Cause and Effect

Not sure if I would call these "striking" facts, but here's a new study by Edward Glaeser on inequality:
This paper reviews five striking facts about inequality across countries. As Kuznets (1955) famously first documented, inequality first rises and then falls with income. More unequal societies are much less likely to have democracies or governments that respect property rights. Unequal societies have less redistribution, and we have little idea whether this relationship is caused by redistribution reducing inequality or inequality reducing redistribution. Inequality and ethnic heterogeneity are highly correlated, either because of differences in educational heritages across ethnicities or because ethnic heterogeneity reduces redistribution. Finally, there is much more inequality and less redistribution in the U.S. than in most other developed nations.
Actually, the third point raises a good question. Countries with very high income inequality really do tend to have very low levels of redistribution, and vice versa. But is this because a progressive welfare state tends to, on average, reduce inequality? (It might, but not always.) Or is it because unequal societies have well-entrenched and disproportionately powerful ruling classes that can successfully block welfare reforms? Obviously it could be both, or neither, or some more complicated answer.
-- Brad Plumer 3:48 PM || ||