Association for Public Policy Analysis & Management

In the context of the undisputed rise in income inequality across the industrialized world in recent decades, the study of its determinants has become one of the most fertile research agendas by economists, political scientists and sociologists alike. Most of these accounts stress long-run, structural and institutional factors that explain cross-country variation as well as long-run trends in the evolution of inequality, such as skill-biased technological change, globalization, size of the public sector, corporate governance practices, welfare and labour-market institutions and partisan control of government. Inspired by the political business cycle literature, this contribution introduces an overlooked factor in the debate that speaks to the dynamic evolution of inequality around its long-run trend: electoral pressure on governments to redistribute for re-election purposes. First, our paper outlines multiple channels through which governments’ electioneering motives may imply election-induced distributional changes in income. Second, our analysis relies on a number of different measures of inequality obtained from multiple data sources (EU-SILC, ECHP, SWIID and WID) for the European Union member states and non-EU OECD countries since the 1970s.  Using this data, we construct a cross-country time-series dataset to test for the impact of electoral periods on the evolution of inequality. Our empirical results suggest that when controlling for the relevant factors identified by the literature, electoral periods have a statistically significant negative impact on market inequality and a positive impact on the redistributive efforts of incumbent governments. Much of the impact, however - as evidenced by a number of panel error-correction models - is shown up several years after the elections occur.