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EUI WORKING PAPERS Access European Open Author(S) Repository. Research Institute University European Institute. Cadmus, EUROPEAN UNIVERSITY INSTITUTE EUI WORKINGEUI PAPERS on University Access Factional Strife and Vote Mobilization The Politics of Income Redistribution. European Open under Thatcher European Forum Author(s). Available R EUF No. EUF 99/10 o s a The 2020. © M in u lé Library EUI the by produced version Digitised Repository. Research Institute University European Institute. European University Institute Cadmus, 3 0001 0037 8611 0 on r University _________ Access _ .... im unii mi nil II European Open Author(s). Available The 2020. © in Library EUI the by produced version Digitised Repository. Research Institute University European Institute. Cadmus, on Mule: Mule: University The Politics of Income Redistribution. Income of Politics The Factional Strife and Vote Mobilization under Thatcher under Mobilization Vote and Strife Factional Access EUI Working PaperEUI EUFWorking 99/10 No. European Open WP WP 3 0 9 EUR Author(s). Available The 2020. © in Library EUI the by produced version Digitised Repository. Research Institute University European Institute. directed by Professors programmeMaurizio Ferreraon (UniversitiesThis ofWorking Pavia Paperand Bocconi,has beenMilano) writtenand in the context of the 1998-1999 European Forum Adopting a broad, long-term and comparative perspective, the Forum will aim to: Martin Rhodes (Robert Schuman Centre). sub-national and supra-national level; identify the various■ options for, and constraints on institutionalEuropean welfare reform; states; ■ and, more generally,■ outline the broad trajectories and scenarios ofchange. discuss the■ role of the various actors in promoting or hindering this reform at the national, scrutinize ■ the complex web of social, economic and political challenges to contemporary Cadmus, on University Access Recasting the European Welfare State: Options, Constraints, Actors, European Open Author(s). Available The 2020. © in Library EUI the by produced version Digitised Repository. Research Institute University European Institute. Factional Strife and Vote Mobilization under Thatcher EUROPEAN UNIVERSITY INSTITUTE, FLORENCE Cadmus, on BADIA FIESOLANA, SAN DOMENICO (FI) University The Politics ofIncome Redistribution. Access EUI Working Paper EUF No. 99/10 EF Jean Monnet Fellow (1998-99) and, European Open EUROPEAN FORUM University ofWarwick ROSA MULli Author(s). Available The 2020. © in Library EUI the by produced version Digitised Repository. Research Institute University European Institute. Cadmus, on University No part of this paper may be reproduced in any form Access European Open Printed in Italy in September 1999 without permission of the author. I - 50016 San Domenico (FI) European University Institute Author(s). Available AH AH rights reserved. © 1999 Rosa Mul6 Badia Fiesolana The 2020. © in Italy Library EUI the by produced version Digitised Introduction1 Repository. In the past twenty years rising income inequality has become a persistent feature of most rich industrialized countries, calling for exploratory and explanatory research.2 In view of the negative implications of inequality growth for health, crime and education,3research on income inequality in liberal democracies seems to be Research particularly urgent. Institute Yet political economists have paid remarkably little attention to distributive issues.4 Perhaps thirty years of economic prosperity have deflected their interest away from these issues, but they are hard to ignore today after two decades of upward inequality movements in Western countries. Studies of income distribution University demonstrate that understanding inequality trends requires an assessment of government behaviour.5 European 1 This is a revised version of a paper presented at the IPSA XVII Conference 17-21 August, Institute. Seoul,1997 and at the European University Institute, February 1999.1 have greatly benefited from the detailed and constructive comments of Roger Duclos-Williams. I would also like to thank Cadmus, Jens Alber, Patrick Dunleavy, Wyn Grant, Christopher Hood, Piero Ignazi, Kay Lawson, Linda on Luckhaus, Ian McAllister, Deborah Mitchell, Michael Moran, Brendan OLeary and Campbell University Sharman for helpful observations on previous drafts of this paper. The usual disclaimers apply. A substantial revision of the paper came while I was a Jean Monnet Fellow of the European Access Forum, Robert Schuman Centre, European University Institute. Material from the Family Expenditure Survey in the United Kingdom 1986 and 1991, source: Office for National Statistics European Open is Crown Copyright. It has been made available by the Office for National Statistics through the ESRC Data Archive and has been used by permission. Neither the Office for National Statistics nor the ESRC Data Archive bear any responsibility for the analysis or the interpretation of the Author(s). data reported here. Available 2A.B. Atkinson, L. Rainwater, T.M. Smeeding (1995) "Income Distribution in European Countries. Evidence from the Luxembourg Income Study",OECD', A. Brandolini (1998) "Pareto's The 2020. Law and Kuznets’Curve: A Bird's-Eye view of Long-Run Changes in Income Inequality", Banca © in D’ Italia, Research Department, Rome. 3 R. Wilkinson, "The Culture of Inequality", Paper presented at the Conference on Relations Between Social Protection and Economic Performance, European Forum, European University Library Institute, (11-12 May, 1999); I. Kawachi and B.P. Kennedy (1997) "Socioeconomic Determinants of Health 2 : Health and Social Cohesion: Why Care About Income Inequality?", British Medical EUI Journal, Vol. 314, 1037-40; X. Sala-i-Martin (1997) 'Transfers, Social Safety Net and Economic the Growth", IMF Staff Papers, Vol. 44, 81-102. by 4 See P. Hall (1997) "The Role of Interests, Institutions, and Ideas in the Comparative Political Economy of the Industrialized Nations" in M.I. Lindbach and A.S. Zuckerman, (eds) Comparative Politics. Rationality, Culture and Structure, Cambridge University Press, Cambridge, 174-287. produced 5 A.B. Atkinson (1996) "Seeking to Explain the Distribution of Income" in J. Hills (ed.), New Inequalities, Cambridge, Cambridge University Press, 19-48. A. Brandolini, Non linear Dynamics, Entitlement Rules, and the Cyclical Behaviour of the Personal Income Distribution, version Centre for Economic Performance, Discussion paper no. 84, London School of Economics. Digitised This paper is a step towards an explanation of the redistributive impact of ruling parties. It proposes a new theoretical interpretation regarding some changes in the social security system that could have affected inequality trends in Britain in the 1980s. I control the validity of this interpretation by drawing on the available Repository. qualitative and quantitative evidence. Several authors have underscored the potential links between social security Research benefits and income inequality. Atkinson,6for instance, found that in Britain the government’s decision in the early 1980s to index social security benefits to prices rather than to net average earnings could account for a sizeable increase in Institute inequality in the mid-late 1980s. In a similar vein, Johnson and Webb have calculated that application of the 1979 tax-transfer system to the distribution of household income in 1988 could have reduced the inequality index by 3 percentage University points.7 Direct taxes are moderately progressive but tax avoidance and measurements problems mean that transfer payments offer more reliable opportunities for redistribution.8 European From the above discussion it may appear that research on income distribution Institute. will be intimately connected with social security policies. Yet the bulk of scholarly Cadmus, work focuses on international forces, especially trade and technological progress.9 on According to this literature, upward inequality trends are caused by a shift away University from the demand for unskilled labour and in favour of skilled workers. This structural change in the labour market is apparently triggered by the liberalization Access of international trade, the diffusion of information technology and fierce European competition from low-wage newly industrialized countries. Open The main problem with this explanation is the inability to account for cross­ Author(s). national variation in inequality trends. Table 1 shows that in some countries the Available The 6 A.B. Atkinson (1993) "What is happening to the distribution of income in the UK?", 2020. © Proceedings o f the British Academy. in 7 P. Johnson and S. Webb (1993) "Explaining the growth of UK income inequality 1979-1988", Economic Journal, Vol. 103, 429-35. The tax system was made more regressive. There was a shift away from direct to indirect taxation by replacing the previous split rates of Value Added Library Tax (VAT), 8 and 12.5 percent, with a single rate of 15 percent. The Conservative government EUI initially cut the top marginal tax rate on earned income from 83 to 60 percent, and later reduced it to 40 percent. It also cut the basic rate of income tax from 33 to 30 percent, later reduced to 25 the percent. by S. Ringen (1987) The Possibility o f Politics, Oxford, Clarendon Press, 175. 9 R. Freeman and L. Katz (eds) (1995) Differences and Changes in Wage Structures, Chicago, University of Chicago Press; A. Wood (1994) North-South Trade, Employment and Inequality: Changing Fortunes in a Skill-Driven World, Oxford, Clarendon Press; P. Gottschalk and T. produced Smeeding" (1997)
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