Newswise — Democratic government has historically had little impact on wealth inequality, NYU’s David Stasavage and Stanford’s Kenneth Scheve conclude in a new analysis in the journal Annual Review of Political Science.
“Democracy has many virtues, but it does not necessarily put societies on a path to greater wealth equality,” they write. “This is not because public policy does not make a difference, but rather because democracies do not necessarily implement wealth-equalizing policies.”
Moreover, their work counters a prevailing view that wealth inequality spurs the unraveling of democratic forms of government; Stasavage and Scheve reveal that such a position is not supported by economic history. In their 2016 work, Taxing the Rich: A History of Fiscal Fairness in the United States and Europe (Princeton), Scheve and Stasavage considered evidence from 20 countries covering the past 200 years in offering an in-depth account of progressive taxation. In it, the authors posited that governments don’t tax the rich just because inequality is high or rising—rather, they do it when people believe that such taxes compensate for the state unfairly privileging the wealthy.
In the Annual Review of Political Science paper, which expands on Taxing the Rich, Scheve and Stasavage consider the following: why are democracy and high levels of wealth inequality sustainable together? Here, they conclude that three key—and familiar—features of democratic political systems make this possible:
• When societies are divided along cleavages other than wealth, such as religion or ethnicity, which can inhibit the adoption of wealth-equalizing policies.• When voter preferences for the redistribution of wealth depend on the beliefs they form about the fairness of these measures—in other words, when some voters see re-distribution of wealth (i.e., a method for addressing inequality) as unfair. • When the democratic process is “captured” by the wealthy, who are able to exert disproportionate influence on government to block policies that equalize wealth.
“In an era of rising inequality in the U.S., people often wonder if the failure of government to address the problem may somehow be abnormal,” observes Stasavage, Julius Silver Professor in NYU’s Wilf Family Department of Politics. “History shows we are unfortunately much more normal than you might think.”
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Annual Review of Political Science