Political Economy of Income Distribution Dynamics

Abstract

Income distribution varies considerably across countries; it tends to decrease with development in some countries, but just the opposite occurs in other countries. This paper provides a theoretical and empirical investigation of the persistent differences in income distribution across countries over time. The analysis centers on the role of public education where specific investments interact with political involvement by different socio-economic groups. Socio-economic groups may form lobbies to influence educational policy making. The formation of lobbies is endogenous. Persistent inequality is caused by persistent lobbying efforts of the wealthy that lead to an allocation of public education spending more biased toward them. Empirical evidence from data on public spending at different school levels for a broad range of countries over the past 30 years confirms that different income distributions tend to be self-sustained through different allocations of public education spending.

Keywords: income distribution, dynamics, allocation of public education spending, political economy, lobby

JEL Classification: D7, H4, I2, O1