Federalism and American Inequality

Abstract

Studies of the political determinants of economic inequality have usually focused on the national government, but in federalist systems subnational governments may also be important. In recent decades, the U.S. national government has been less active in fighting inequality, but increasing devolution means that states wanting to address this problem have had a greater incentive and perhaps means by which to do so. Applying power resources theory, we argue that in states where left parties are stronger and more liberal politics are enacted, the government will reduce inequality and that this state effect becomes more pronounced as middle- and lower-class power wanes nationally. In the analysis we find that both federal and state governments influence inequality, and since the Republican takeover of Congress in 1995, the states have played a more important role in shaping the income distribution.