Income distribution and public social expenditure: Theories, effects and evidence

Bonney, and Kati Foley for their excellent help with manuscript preparation. All errors are our own. “Political irrelevance not withstanding, inequality is exacting a considerable cost on the society and turning attention to it would hardly be ‘frivolous’. ” – Smolensky (2002) What is the relationship between economic inequality and public social expenditure? Why might it matter? Because income distribution and social spending are jointly determined by economic growth and political decisions, these issues have long been analyzed by both economists and political scientists. Over seventy years ago, R. H. Tawney, discussed the growth and significance of public provision for education, health and social services, and noted that “the standard of living of the great mass of the nation depends, not merely on the remuneration which they are paid for their labour, but on the social income which they receive as citizens”—and he saw the expansion of such public spending for “purposes of common advantage ” as the primary route to overcome inequalities of opportunity and circumstance (1964:133, 121). In his now-classic book, Esping-Andersen has more recently (1990) argued that there are significant differences betwee