Inequality in the 21st Century

The London School of Economics & Political Science

London, UK

July 02 - 04, 2015

One of the canonical theoretical claims in political economy is that of the Meltzer-Richard model that as inequality increases, demand for redistribution should increase.

The three papers in this session highlight three explanations of variation (or not) in redistributive preferences at the individual level which make this story more complex-- or cast doubts on its usefulness in understanding contemporary trends in redistributive policy and politics.

Henning Finseraas argues that the role of absolute income in preferences for redistribution is more important than that of relative income, and that this points to the dominance of insurance-- rather than redistributive-- motives in policy preferences. 

Guillaud and Zemmour note that rather than the level of inequality, its structure may be more consequential for the redistributive preferences of the well-off, and indeed that the negative relationship between relative income position and redistributive preferences (as discussed by Finseraas) may vary across countries depending on the structure of inequality rather than its overall level. 

Taken together, the relationship between relative income position and demands for redistribution (higlighted by Finseraas and Guillaud), and the trends in aggregate income shares in the population of the United States, would lead us to predict high and increasing demands for redistribution which have generally not materialised. In the final paper of the session, Navot argues that this may be explained by a better understanding of income trends at the individual level. He argues that there has been little experience of earning stagnation for the median (lifetime) income earner, despite aggregate income stagnation. The absence of this `existential stagnation' may prevent the emergence of political counterweights to increasing economic inequality.