Karabarbounis (2014) Flashcards
Empirical memorisation.
What is the research topic of Karabarbounis (2014)?
The main objective of the paper is to explore the relationship between inequality and wealth in an economy. A particular interest is how the wealth of a group of individuals impacts the weight of their vote.
What is the main objective of Karabarbounis (2014)?
To showcase that inequality in an economy is an integral driving force behind the magnitude of redistribution in an economy.
What are the main findings of Karabarbounis (2014)?
The paper finds a robust, positive relationship between the earnings of the poor and redistributive spending. Also, a consistent negative correlation between relative earnings of the rich and redistribution is found.
What is the key aspect of the findings concerning wealth and the need for redistribution? How does this link to One Dollar One Vote?
It is relative income to the weighted mean that matters most. As in the Meltzer and Richard (1981) model, it is the difference between Ybar and Ym that dictates the magnitude of redistribution proxied by the median tax rate.
Essentially, the poor can remain poor yet if their income relative to the mean rises then redistribution in the economy will rise. This is the essence of One Dollar One Vote.
In theory, Karabarbounis (2014) appears to support the model of Meltzer and Richard (1981). Is this true?
The findings fit the theory, yet Karabarbounis (2014) claims that Meltzer and Richard’s model is too simple in practice. They cite that, although the United States income distribution is one of the most unequal, it redistributes relatively less than other nations.
Briefly describe the econometric model of Karabarbounis (2014).
The dependent variable is Total Public Expenditure (% of GDP).
The key bit revolves around three independent variables: Y90/Ybar, Y50/Ybar, and Y10/Ybar. These measure the income of the appropriate decile in relation to the weighted mean income. They act as measures of the rich, middle class, and poor respectively.
Y50/Ybar can be seen as the Median Voter. Does the paper provide evidence that their behaviour mimics theory?
Yes. The paper showcases that as the income group Y50/Ybar become richer they desire less redistribution, in line with the Meltzer and Richard model.
What are the interpretations of the results offered by Karabarbounis (2014)?
A rational interpretation of One Dollar One Vote is that political participation increases with income.
Summarise the notion of One Dollar One Vote and how wealth affects inequality.
As your income rises relative to the mean you’re more inclined to vote as political participation rises with income. Therefore, your income group is more inclined to vote which means your collective voice is more easily heard. Thus, your redistributive needs are pandered to to a greater degree: redistribution shifts towards your income groups desired level.
