PSC 644 The Political Economy of Inequality

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1 PSC 644 The Political Economy of Inequality Time: Wednesday pm Venue: Gross Hall Instructor: Prof. Pablo Beramendi, 207 Gross Hall Contact: Voice: , Office Hours: Tuesday 1-3 pm, or by appointment Distributional issues are at the core of the study of politics. From Laswell s famous claim that politics is about who gets what, how, and when, the politics of inequality features prominently among the central themes in the discipline. This centrality is reflected in the significant increase in quantity and quality in the research of the subject witnessed over the last two decades, and in particular in the last few years. New data sources and analytical tools explain a revival that is shedding new light on some of the key mechanisms driving politics. This seminar is designed to provide you with a critical overview of the field, both theoretically and empirically, and to advance your methodological and analytical skills. After briefly reviewing the normative foundations and conceptual complexities involved in the study of inequality, we will spend two weeks covering methodological issues. As much as with any other field, data production and manipulation matter enormously for our understanding of cross-national and over time variations. In addition, measures of inequality vary in their analytical properties, and it is important to choose the right one. We will review the main issues when measuring inequality and learn how to produce inequality indicators from micro-data using the Luxembourg Income Study database. Thereafter, we will turn to the more analytical part of the seminar. First, we will concentrate on the political and institutional foundations of various forms of inequality. Thereafter, we will focus on the political effects of inequality, paying particular attention to issues such as preference formation, political involvement, and the selection of political and fiscal institutions. Finally, we end the seminar with an analysis of the long-term relationship between inequality and development. We will pay particular attention to some of the key mechanisms governing such relationship and will take stock about where we are and what the new frontiers in the field are. Schedule and Themes PART I: FUNDAMENTALS September 7th: The Normative Dimension: Inequality of what? Should governments intervene? Why? When? How? Key concepts of inequality and their political ramifications. Philippe Van Parijs 1996: Are Inequalities ever just? (

2 Amartya Sen 2000 Social Justice and the Distribution of Income in A.B.Atkinson and F. Bourguignon (eds) Handbook of Income Distribution Ronald Dworkin Sovereign Virtue. Harvard University Press (chapters 1,2). John Roemer 2009 Equality: Nature and Demand Oxford Handbook of Economic Inequality Additional Readings Amartya Sen Inequality Re-examined. Harvard University Press September 14th: Linking Concepts, Measurements, and Analytical Questions. Jenkins, Stephen & Philipp van Kerm 2009 The Measurement of Economic Inequaity Oxford Handbook of Economic Inequality Robin Boadway, Michael Keen 2000 Redistribution in Atkinson and Bourginon (eds) Handbook of Income Distribution (vol 1) Rolf Aaberge, Andrea Brandolini 2015 Multidimensional Inequality and Poverty in Atkinson and Bourginon (eds) Handbook of Income Distribution (vol 2) Salvatore Morelli, Timothy Smeeding, Jeffrey Thompson 2015 Post-1970 Trends in Within- Country Inequality and Poverty: Rich and Middle-Income Countries in Atkinson and Bourginon (eds) Handbook of Income Distribution (vol 2) Facundo Alvaredo, Leonardo Gasparini 2015 Recent Trends in Inequality and Poverty in Developing Countries in Atkinson and Bourginon (eds) Handbook of Income Distribution (vol 2) Branko Milanovic 2016 Global Inequality. A New Approach for the Era of Globalization. Cambridge, MA. Harvard University Press (chapters 1,2,3 pdfs). September 21st: From concepts to data: Measuring Inequality II. How to use the LIS database (lecture and hands on practice) Relevant LIS links: Resources: Self-teaching: Registration (do it asap!!): app/request-account-identification 2

3 PART II: POLITICAL FOUNDATIONS OF INEQUALITY September 28th: Inequality and Growth in the Long Run Lindert and Williamson 2016 Unequal Gains: America Growth and Inequality since 1700, Cambridge, Cambridge University Press T. Piketty 2014 Capital in the XXI Century, Cambridge, Harvard University Press (selections) ADDITIONAL MATERIALS Robert Allen Global Economic History: A Very Short introduction. Oxford University Press. Atkinson, Anthony B. and Thomas Piketty (2007). Top Incomes over the Twentieth Century: A Contrast between Continental European and English-Speaking Countries (Volume 1). Oxford: Oxford University Press, 585 pp. Atkinson, Anthony B. and Thomas Piketty (2010). Top Incomes over the Twentieth Century: A Global Perspective (Volume 2). Oxford: Oxford University Press. Atkinson, Anthony B., Thomas Piketty and Emmanuel Saez (2011). Top Incomes in the Long Run of History Journal of Economic Literature, 49(1), pp Nancy Birdsall, Nora Lustig et al. 2011: Declining Inequality in Latin America: Some Economics, Some Politics ( Lustig_McLeod_FINAL.pdf) Irwin Garfinkel, Lee Rainwater, Timothy Smeeding 2010 Wealth and Welfare States, Oxford University Press (chapters 3 & 4) Peter Lindert: 2000 Three Centuries of Inequality in Britain and America in Atkinson and Bourguinon Handbook of Income Distribution (vol 1) Allan Meltzer and Scott Richard, A Rational Theory of the Size of Government. Journal of Political Economy 89: C. Morrison 2000: Historical Perspectives on Income Distribution: The Case of Europe in Atkinson and Bourguinon Handbook of Income Distribution, Elsevier. Stein Ringen The Possibility of Politics. Oxford, Oxford University Press. (selections) Patters across space and time (selected overviews and sources) OECD Reports (for rich countries, available on line with their associated datasets): Divided We Stand: Why Inequality Keeps Rising (2011) Growing Unequal? Income Distribution and Poverty in OECD Countries (2008) Also, very useful: The World Top Income Datasets ( October 5th: State Capacity and Inequality C. Boix 2015 Political Order and Inequality, CUP (selections) 3

4 G. Cox 2016 Marketing Sovereign Promises: Monopoly Brokerage and the Growth of the English State, CUP (selections) Peter Lindert 2004 Growing Public. Social Spending and Economic Growth since the Eighteen Century. CUP (selections) October 12th: Wealth Inequality Anthony B. Atkinson 2015 Inequality: What can be done? Harvard University Press (chapters 6 and 7, pdfs made available in Sakai) Gabriel Zucman (2016) The Hidden Wealth of Nations, The University of Chicago Press Ken Scheve and David Stasavage (2015) Taxing the Rich: A History of Fiscal Fairness in te USA and Europe,PUP (selections) Ken Scheve and David Stasavage (2015) Origins of Wealth Inequality. Stanford/NYU Working Paper- Adam Przeworski and Michael Wallerstein 1982: The Structural Dependency of the State on Capital, American Political Science Review, 82, ADDITIONAL MATERIALS for State Capaciy (10/5) and Wealth Inequality(10/12) Tim Besley and Torsten Persson Pillars of Prosperity. Princeton University Press M. Daunton Trusting Leviathan: the Politics of Taxation in Britain, , NY, CUP Lucas, R Why Doesn t Capital Move from Rich to Poor Countries? American Economic Review Margaret Levi On Rule and Revenue, UCLA Press S. Steinmo The Evolution of Modern States: Sweden, Japan, and the United States, NY, CUP. October 19th: Inequality, Domestic Conditions, and National Interdependencies I: Income Redistribution in Developed Democracies Stigler, George J. Director s Law of Public Income Redistribution. Journal of Law and Economics 13, no. 1 (1970): 110. Benabou, Roland 2000 Unequal Societies: Income Distribution and the Social Contract American Economic Review, 90, 1. Moene, Karl Ove & Barth, Erling (2016). The Equality Multiplier: How Wage Compression and Welfare Empowerment Interact. Journal of the European Economic Association. ISSN

5 Barth, Erling; Finseraas, Henning & Moene, Karl Ove (2015). Political Reinforcement: How Rising Inequality Curbs Manifested Welfare Generosity. American Journal of Political Science. ISSN (3), s Philipp Rehm 2016 Risk Inequality and the Welfare State, New York, Cambridge University Press (selections, pdf available in Sakai) Beramendi et al. (eds) The Politics of Advanced Capitalism CUP (selections) Iversen, Torben and David Soskice Real Exchange Rates and Competitiveness: The Political Economy of Skill Formation, Wage Compression, and Electoral Systems. American Political Science Review. N. Lupu and J. Pontusson 2011 The Structure of Inequality and the Politics of Redistribution APSR October 26th: Inequality, Domestic Conditions, and National Interdependencies II: Income Redistribution in Developing Democracies Holland, Alisha 2016 Forebearance American Political Science Review, forthcoming Cai H, Treisman D Does Competition for Capital Discipline Governments? Decentralization, Globalization, and Public Policy. Am. Econ. Rev. Erik Wibbels 2006: Dependency revisited: International Markets, Bussiness Cycles, and Social Spending in the Developing World International Organization 60, M. Altamirano, D. Rueda, E. Wibbels 2015 The Political Origins of Dualism in Beramendi et al The Politics of Advanced Capitalism, CUP. D. Queralt 2015 From Mercantilism to Free Trade: A History of Fiscal Capacity Building. Quarterly Journal of Political Science P. Beramendi, M. Rogers, Alberto Diaz Cayeros Barriers to Egalitarianism: Distributive Tensions in Developing Federations LARR, forthcoming ADDITIONAL MATERIALS BEARING ON THE POLITICS OF INCOME REDISTRI- BUTION Alicia Adsera and Carles Boix 2002: Trade, Democracy and the Size of the Public Sector: the political underpinnings of openness International Organization 56, 2, Jonas Agell On the Determinants of Labour Market Institutions: Rent Seeking vs. Social Insurance German Economic Review, Volume 3 Issue 2 Page M. Altamirano 2012 Economic Informality, Risk-Hedging and Community Safety Nets in Latin America B. Ansell Ballot to the Blackboard. Cambridge, CUP (selections) Pablo Beramendi and David Rueda 2007: Social democracy constrained: Indirect taxation in Industrialized Democracies, British Journal of Political Science 5

6 D. Bradley et al. 2003: Distribution and Redistribution in Post-industrial Societies World Politics 55: Deborah A. Bräutigam, Odd-Helge Fjeldstad and Mick Moore: Taxation and statebuilding in developing countries: capacity and consent, Cambridge University Press (selections) Carles Boix 1998: Political Parties, Growth and Equality, Cambridge University Press (chapters 1-2 ) Carles Boix 2006: Between Redistribution and Trade: The Political Economy of Protectionism and Domestic Compensation in Pranab Bardhan (ed.) Globalization and Egalitarian Redistribution, Princeton University Press. Lars Calmfors and J. Driffill 1988: Bargaining Structure, Corporatism and Macroeconomic Performance Economic Policy 6: E. Calvo & M.V. Murillo (2005) Who delivers? Partisan Clients in the Argentinian Electoral Market, American Journal of Political Science. David Cameron 1978: The Expansion of the Public Economy: a comparative analysis American Political Science Review 72, 4, (background) G. Cox Swing Voters, Core Voters, and Distributive Politics (available here: Thomas Cusack and P. Beramendi Taxing Work European Journal of Political Research, Volume 45, Issue 1, pages 4373 Dixit Avinash and John Londegran The Determinants of Success of Special Interests in Redistributive Politics. Journal of Politics, Vol. 58, pp Avinash Dixit and John Londregan 1998: Ideology, Tactics, and Efficiency in Redistributive Politics Quarterly Journal of Economics 113: S. Ganghoff 2006 The Politics of Income Taxation. A Comparative Analysis, ECPR Monographs Series, Colchester: ECPR Press (selections) Geoffrey Garrett 1995: Capital Mobility, Trade and the Domestic Politics of Economic Policy International Organization, 49,4, For a more detailed development of the argument, I d recommend Garret s book (Partisan Politics in the Global Economy, CUP, 1998). Gosta Esping-Andersen 1999: Politics without class? in Herbert Kitschelt et al. (eds) Continuity and Change in Contemporary Capitalism, Cambridge University Press. Grossman, Gene M., and Elhanan Helpman Protection for Sale. American Economic Review 84, Peter Hall and Robert J. Franzese 1998: Central Bank Independence, Coordinated Wage Bargaining, and European Monetary Union International Organization 52: Peter Hall and David Soskice 2001: Introduction in Peter Hall and David Soskice (eds.) Varieties of Capitalism, Oxford University Press. Michael Hiscox 2001: Class versus Industry cleavages: Inter-industry Factor Mobility and the Politics of Trade International Organization, 55, 1, For a more extended treatment Hiscox s book International Trade and Political Conflict, Princeton University Press (2004). 6

7 E. Huber and J. Stephens 2012 Democracy and the Left: Social Policy and Inequality in Latin America U of Chicago Press. Torben Iversen and Anne Wren 1998: Equality, Employment and Budgetary Restraint: the trilemma of the service economy World Politics, 50, Torben Iversen 2005: Capitalism, Democracy and Welfare, Cambridge University Press Torben Iversen and David Soskice (2006) Electoral Institutons and the Politics of Coalitions American Political Science Review 100,2, Peter Katzenstein 1985: Small States in World Markets: Industrial Policy in Europe, Cornell University Press (chapters 1,2. rest of the book recommended). Clientelism and Portfolio Diversification: A model of Electoral Investment with Applications to Mexico (2006) In Herbert Kitschelt and Steven Wilkinson Patrons of Policies London: Cambridge University Press, published with Alberto Diaz-Cayeros and Federico Estvez Isabela Mares 2003: The Politics of Social Risks, New York, Cambridge University Press Isabela Mares 2006: Taxation, Wage Bargaining and Unemployment, NY, CUP Piketty, Thomas, Emmanuel Saez, and Stefanie Stantcheva. Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities. NBER Working Paper (November 2011). Jonathan Rodden 2010 The Long Shadow of the Industrial Revolution (Selections) Dani Rodrik 1998: Why do more open economies have bigger governments? Journal of Political Economy, 106, 5, John Roemer Why the Poor don t expropriate the rich: an old argument in a new garb Journal of Public Economics 70: Ronald Rogovski 1987: Political Cleavages and the Changing Exposure to Trade American Political Science Review, 81, 4, For a more extended treatment see Rogowski s book Commerce and Coalitions: How Trade affects Domestic Political Alignments, Princeton University Press (1989) David Rueda 2005: Insider-Outsider Politics in Industrialized Democracies: The Challenge to Industrialized Democracies American Political Science Review 99, David Rueda 2007 Social Democracy Inside-Out Oxford OUP David Austen Smith 2000: Redistributing Income under Proportional Representation Journal of Political Economy 108, 6, D. Stasavage and K. Scheve Inequality and Institutions in the Long Run World Politics. Susan Stokes Perverse Accountability: A Formal Model of Machine Politics with Evidence from Argentina. American Political Science Review 99(3): Timmons, Jeffrey F. The Fiscal Contract. States, Taxes, and Public Services. World Politics 57, no. 4 (2005): Michael Wallerstein Wage-Setting Institutions and Pay Inequality in Advanced Industrial Societies American Journal of Political Science, Vol. 43 3: Erik Wibbels 2016 Trade, Development and Social Insurance, book manuscript/cup 7

8 November 2nd: Mobility and Opportunity: the Macro-Level G. Becker and Nigel Tomes 1979 An Equilibrium Theory of the distribution of income and intergenerational mobility JPE 87/6: Raj Chetty et al Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States Quarterly Journal of Economics 129(4): , 2014 (See also Esping Andersen G. Equality of Opportunity in an increasingly hostile world (available here, along with many other relevant pieces, articles.htm) John E. Roemer & Rolf Aaberge & Ugo Colombino & Johan Fritzell & Stephen P. Jenkins & Ive Marx & Marianne Page & Evert Pommer & Javier Ruiz-Castillo & Maria Jesus San Segundo & Torben Tranaes & Gert G, To What Extent do Fiscal Regimes Equalize Opportunities for Income Acquisition Among Citizens?, Journal of Public Economics. Bukodi, Goldthorpe et al 2015 The Mobility Problem in Britain: new findings from the analysis of birth cohort data British Journal of Sociology 66/1 Björklund, Anders, M. Lindhal, E. Plug 2006 The original of intergenerational associations: Lessons from Swedish adoption data QJE 121-3: Ansell, Ben and Pablo Beramendi 2016 The Politics of Income Mobility, Oxford and Duke, Working Paper R. Landerso and J. Heckman 2016 The Scandinavian Fantasy: The Sources of Intergenerational Mobility in Denmark and the US NBER-Working Paper ADDITIONAL MATERIALS Björklund, Anders & Jäntti, Markus & Roemer, John E., Equality of Opportunity and the Distribution of Long-Run Income in Sweden, IZA Discussion Papers 5466, Institute for the Study of Labor (IZA). F. Galton 1877 Typical Laws of Heredity Proceedings of the Royal Institution of Great Britain, 8, McKinsey & Company Poorer than their Parents? Flat or Failing Incomes in Advanced Economies A. Krishna 2010 One Illness Away Oxford, Oxford University Press. PART III: POLITICAL IMPLICATIONS OF INEQUALITY November 9th: Economic and Political Inequality: Affluence and Influence A. Przeworski 2010 Democracy and the Limits of Self Government Cambridge, CUP (selections) 8

9 Filippe R. Campante Redistribution in a Model of Voting and Campaign Contributions. Journal of Public Economics 95: M. Gillens 2012 Affluence and Influence Princeton University Press (selections) F. Amat and P. Beramendi Democracy under High Inequality: Political Participation and Public Goods. Working Paper Larry Bartels Unequal Democracy, Princeton, Princeton University Press. (Selections) November 16th: Inequality and Political Conflict P. Bolton and G. Roland The Break-up of Nations QJE Jean Paul Carvahlo and Christine Binzel Education, Social Mobility and Religious Movements: The Islamic Revival in Egypt. The Economic Journal, forthcoming. Beramendi and Stegmueller 2016 The Political Geography of the Euro-Crisis Duke University, WP B. Ansell and D. Samuels Inequality and Democracy. A Contractarian Approach, Book Manuscript (selections) D. Acemoglu & J. Robinson (2000) Why Did the West Extend the Franchise? Democracy, Inequality, and Growth in Historical Perspective Quarterly Journal of Economics. ** November 23rd: Thanksgiving Break. No class! ** November 30th: Inequality and Political Polarization Nolan McCarty, Keith Poole and Howard Rosenthal 2006: Polarized America, MIT Press John Voorheisy, Nolan McCartyz, and Boris Shorx 2015 Unequal Incomes, Ideology and Gridlock: How Rising Inequality Increases Political Polarization WP Oregon/Princeton/Georgetown P. Rehm Risk Inequality and the Polarized American Electorate. British Journal of Political Science, Volume 41(2), pp. 363 J. Pontusson and D. Rueda The Politics of Inequality: Voter Mobilization and Left Parties in Advanced Industrial States Comparative Political Studies 2010, 43: December 7th : PAPER PRESENTATIONS. PAPERS DUE DECEMBER 5TH 9

10 Course Requirements Participation (10 %). You will be expected to have done all the required readings in advance of each class. Though sessions will begin with a short lecture, class sessions will be conducted in a highly participatory seminar format. To ensure we re all keeping up, please send a half page or so of discussion points/questions bearing on the week s reading to everyone by 8 PM the day before class. You can raise questions about theory, method, point out conflicts between readings, develop links with previous weeks readings, whatever. These comments/questions should be 1 page long max. Participation grade will be awarded on the basis of attendance (unjustified absences imply an automatic loss of participation credit), the quality of these short responses, and the contributions to discussion in class. In doing the readings it may be useful to keep the following questions in mind: What are the central issues at stake in this literature? What are the principal arguments of the works under study? How does each relate to the debates in the field? What are the main theoretical or empirical strengths or weaknesses of these studies? How valuable and viable is the theory that each proposes? How effectively does it marshal empirical evidence in support of the argument? How well have the scholarly disputes been resolved? What further work might still be done to resolve remaining scholarly disputes? One Group Exercise (15 %): Depending on the final size of the class, I will organize you in groups of 2-3 students. Each team will be responsible for one group exercise, which can involve either: a) large-n replications and extensions; or b) a research design for a field or lab experiment. Each team must do one of each exercise. Replications/extensions should replicate results from a paper on the syllabus, check for robustness (by, for instance, analyzing subsamples, estimating models using different assumptions, etc), and engage in at least one extension. Experimental research designs should include a discussion of the relevant theory, a justification for the location of the experiment, the principles governing sample size, stratification and randomization, a strategy for data collection and analysis, and preliminary ideas on who your local partners might be and how you might fund the research. You will provide minute presentations of these exercises at the end of each class.the specific presentation dates will be arranged in class. One data exercises (15 %). The goal of this assignment is to get you to work directly on analyzing income distributions. After teaching the relevant materials, I will circulate a list of questions/problems choose from. You are required to deliver your answer by end of the semester. Your answer should include both the substantive answer to the questions in the assignment and the code you produced to generate the answer. You are welcome to team up in groups of two to complete these data assignments as well (it is not compulsory though). You will need to be familiar with and use the LIS Data Center to complete most of these assignments ( Research Paper (60 %). You will write an original research paper of pages that bears on the themes of the class. I would encourage you to talk with me soon about topics, methods, etc. in advance of starting. Papers are due by 5 pm on December 5th 2012, 10

11 ahead of the class presentation on December 7th. Late papers will be penalized by a letter grade per day. Contrary to common practice in the department, I am profoundly averse to issuing Incompletes. During this session you will have the task of presenting and discussing someone else s paper (nobody will present their paper) in a manner similar to what you would do in a professional conference. The session will be entirely devoted to offering feedback on the papers. It is important that everyone receives the papers on time and reads them before hand. Some general instructions on how to write the paper follow. The paper is an analytical piece. The topic should be arranged with the instructor by the fourth week of the semester. Students are expected to give me a preliminary paper proposal (1 page max) no later than September 17th and a detailed outline (4 pages max) by October 1st. Good papers are the product of original thought and set forth a distinct hypothesis or interpretation of the relevant issues. Research papers add to this kind of theoretical discussion a preliminary empirical test of the hypotheses under discussion. The papers will be evaluated according to the (1) effectiveness and insight with which they illuminate the question under scrutiny in an independent and critically-minded way and (2) the links between the theoretical arguments, the methodology adopted to approach the question, and the evidence marshaled to support the claims. Style matters. Papers should be of journal article length (double-spaced, 1 inch margins, Times Roman font, 12 pt., excluding references). Prose style matters. Be focused, and selective. Use active voice. Spell-check. Proofread. Please, before planning your papers read these three pieces (all available online): Barry Weingast (1995) Structuring Your Papers James A. Stimson (n.d.) : Professional Writing for Political Science: A Highly Opinionated Essay Paul Krugman (n.d.) : How I Work NOTE: Students are assumed to be aware of Dukes regulations concerning intellectual honesty and plagiarism. Any manifestation of academic dishonesty will result in failing the class and will be formally reported to the relevant academic authorities. 11