The Democratic State and Redistribution: Whose Interests Are Served?

Abstract

Growing economic inequality has raised concerns that democratic governments are no longer responsive to popular demands for redistribution either because the state capacity is eroded by footloose capital or because the wealthy subvert democracy through the power of money. In this paper we critically assess these conjectures against long-standing arguments about redistribution and insurance under democracy. We test the alternatives on a new comprehensive dataset on income inequality from 17 advanced democracies between 1980 and 2019. We find that before taxes and transfers income inequality has increased markedly everywhere but also that government redistribution has played a critical role in compensating the middle class and to a perhaps surprising degree also the poor. However, the United States is a large outlier.