VOTING OVER REDISTRIBUTION AND THE SIZE OF THE WELFARE STATE

VOTING OVER REDISTRIBUTION AND THE SIZE OF THE WELFARE STATE: THE ROLE OF TURNOUT

V. Larcinese

Political Studies Vol. 55, (2007) pp. 568-85

 A Summary

In a Nutshell

Formal voting models have neglected to take account of the role that voter turnout plays in determining election results. This is because factors that have been shown to be determinants of abstention (education, income, sex), are also correlated with preferences over key policies such as redistribution. Thus although the extension of the voting franchise has changed the landscape of electoral competition as Meltzer Richard make clear, with regard the political demand for welfare it should be recognized that this has probably happened to a much lesser extent than most public choice models would indicate.

 Downsian Analysis of Redistribution

  • If policy space is unidimensional and preferences are single peaked then the median voter is pivotal in majority decision making. Thus parties in electoral competition converge on the policy platform preferred by the median voter.
  • With regard to tax, this means that a tax rate chosen by majority rule will be that preferred by the citizen whose income is the median in the polity. If t is the tax rate, and N is the number of citizens and µ is the mean income, then the total revenue will be tNµ and the per capita benefit will be tµ. If the t  ∈ {0,1} then any citizen above the mean income will want zero tax rate. Any citizen below will want a positive tax rate, and the preferred rate will decrease as their income increases. Anyone below the mean income will receive more than they pay; anyone above will pay more than they receive.
  • As income is always skewed to the right the median lies below the mean i.e. democratic decision making will yield a positive tax rate.
  • If the tax rate cannot be reacted to (people are voters only, and not economic agents) then the preferred tax rate is 100% for those below the mean. However, the rich in fact can react to the tax rate, and they do. Taxes reduce the incentive to produce and the optimal labour supply is an inverse function of the tax rate. Voters understand this tradeoff between size of the pie and the share they receive via redistribution. The ideal tax rate will now take this into account. The more elastic output with regard taxation, the lower the rate. Indeed, as it is possible to move assets abroad at low cost, high taxes can easily erode the taxable capital base.
  • In the Meltzer Richard framework equilibrium redistribution depends on the distance between the median voter’s income and the mean income. The voter is aware of the efficiency cost and updates his preferences accordingly. However, this implies that for a given efficiency cost of taxation, higher inequality will increase the desire for redistribution of the median voter, and hence the tax rate.
  • This is a static model. Dynamic models have been proposed by Alesina and Rodrik where the poorer the median voter’s income relative to the mean, the higher the capital tax rate, and the lower the growth rate.

 Empirical Evidence

  • The empirical evidence is less than strong.
  • It appears that high inequality actually reduces government spending.
  • The A and R model may show a link between inequality and growth, but they cannot prove the intermediate step that inequality reduces growth through redistribution.
  • The social affinity theory provides an alternative link between inequality and redistribution (Lindert). This states there will more redistribution the closer middle-income voters are to the poor and the further they are away from the rich. If those with incomes below the median get poorer the mean income reduces and hence there is less call for redistribution although the position of the median remains unaffected. This leads to a situation of social exclusion in which the poor become poorer but this does not incentivize the middle classes to support more redistribution.

 Turnout

  • Sources of power go beyond formal voting rights. In real life we see varying degrees of turnout. If propensity to abstain were random there would be no problem, and Downsian politics would function in the same way. But non-voters are not randomly distributed – they differ systematically in socio-economic status and therefore in their needs and preferences. E.g. Education, income, age and occupation.
  • Low voter turnout is often equated with socioeconomically biased turnout.

 

  • The above curve is the income distribution, they lower curve is the turnout as a function of income distribution. M* is the median participating voter in terms of income, but he represents a point to the right of the full electorate median in terms of income (M). M* is the pivotal voter. As the tax preferred is decreasing in income we know that M* prefers a lower tax rate to M.
  • When turnout is considered inequality is no longer a good predictor for redistribution. When inequality increases, the desire of the median voter to tax increases, but a concurrent effect is that it makes him less likely to vote. The overall effect is undetermined but we should not expect a rise in inequality to equate a rise in tax and spend.

 Evidence

  • A new regression is run the main finding of which is that the turnout variable is significant and indicates that an increase by one standard deviation in turnout raises social spending by 1.89 percent.
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