This is true whether we look at social spending as of

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This is true whether we look at… Social spending as % of GDP Tax revenue as % of GDP
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Why Might This Be the Case? Given what we’ve learned this semester, why might there be such a huge difference?
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Why Might This Be the Case? Given what we’ve learned this semester, why might there be such a huge difference? Alesina et al look at three categories of explanations: Economic Institutional Cultural
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Economics The Median Voter Theorem generates a strong prediction about the relationship between income inequality and taxation. This can be shown mathematically, but I’ll convey the intuition graphically:
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What the MVT says about taxation income % of pop- ulation income mean income mean and median income HIGH INEQUALITY LOW INEQUALITY Inequality high → poor outvote the rich → enact income redistribution Inequality low → poor and rich votes cancel each other out → less income redistribution median income
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But the MVT Doesn’t Hold for the U.S. In electorates where there are few rich and lots of poor, the MVT predicts there should be redistribution. And in fact, the more income inequality there is, the higher the MVT predicts redistribution should be. BUT: The U.S. has a high degree of income inequality compared to other OECD countries.
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Finishing Alesina et al Alesina et al look at three categories of explanations for why the U.S.’s welfare state is relatively small: Economic Institutional Cultural MVT doesn’t pan out X
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Institutional Explanations Alesina et al then turn to institutional explanations. That is, is there something special about American political institutions that keeps the U.S. welfare state relatively small? Their hypothesis: the fact that all American legislators are elected by geographic district, rather than via proportional representation, i.e., low proportionality . The theory: low proportionality leads elected officials to favor redistribution that is targeted geographically, rather than on the basis of income.
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Cultural Explanations: Beliefs Alesina et al then look at cultural explanations. We know that Americans are particularly individualistic and believe that they are responsible for their own destiny.
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Cultural Explanations: Race Alesina et al also consider the idea that the degree to which a society is racially fractionalized leads to lower levels of redistribution, as people are reluctant to redistribute to those of other races. We discussed the support for this hypothesis across the United States in the previous lecture (states that are more racially fractionalized redistribute less) Alesina et al find support for this notion empirically across countries:
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The Limited U.S. Safety Net: Summing It All Up Good evidence exists for the hypotheses that America’s low-tax, low-redistribution system is attributable to: One INSTITUTIONAL reason: Our geographic, rather than proportional, election system Two CULTURAL reasons:
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