Poverty and Inequality: The Political Economy of Redistribution

Poverty and Inequality: The Political Economy of Redistribution

Poverty and Inequality: The Political Economy of Redistribution

Poverty and Inequality: The Political Economy of Redistribution

Excerpt

In the early 1970s, the War on Poverty appeared to be near a successful conclusion. In 1960, 18.1 percent of American families were living in poverty. But by 1973, the poverty rate of American families had fallen to 8.8 percent. Over this thirteen-year period there was an equally impressive reduction in the percentage of families living near poverty. The percentage of families below 125 percent of the poverty level dropped from 25 to 12.8 percent. During the 1960s, inequality also declined significantly, at least by some measures. In 1960, the top quintile of families earned 41.3 percent of aggregate income while the bottom quintile earned 4.8 percent, for a ratio of income shares of 8.6. By 1970, this ratio had fallen to 7.57.

Unfortunately, the success of the U.S. economy in reducing poverty and inequality did not continue into the next decade. After 1973 the poverty rate rose fitfully, to 10.3 percent in 1980, 10.7 percent in 1990, and 11.7 percent in 1992. Likewise, the near-poverty rate climbed 3 percentage points, to 15.8 percent. Changes in the shares of aggregate income received by families at the top and bottom of the income distribution were no less disturbing. Between 1970 and 1980, the top to bottom quintile share ratio rose slightly, to 7.98. However, over the next ten years it increased dramatically, to 10.14. In fact, each of the first four quintiles earned a smaller fraction of aggregate income in 1992 than they did in 1980. In total, there was a transfer of 3.1 percent of aggregate income from these four quintiles to the top quintile, with about 74 percent of this transfer going to families in the top 5 percent of the income distribution.

In looking for an explanation for this trend, it is perhaps tempting to turn to changing political and social conditions and institutions. Yet while political and social change may have played an important role in reshaping the distribution of income in the United States, income distribution is ultimately an economic phenomenon. After all, income is determined by market forces and the policies that governments adopt . . .

Author Advanced search

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.