How might ideology and social structure affect the fiscal policy of a democratic government? How universal are the characteristics of these factors?

Authors Avatar

                28/02/2004

How might ideology and social structure affect the fiscal policy of a democratic government? How universal are the characteristics of these factors?

  • Socialism is a political doctrine that emphasises the collective ownership of the means of production. It allows limited market activity, ascribing a prominent role to the state in economic management.
  • Under socialism, redistribution of income from rich to poor is a major policy. In the extreme case, equality of outcome will prevail. Thus, irrespective of ability or effort, each individual will receive an equal income.
  • Redistribution transfers resources from one segment of society to another. It is known as the Robin Hood effect. This can be implemented via welfare programs, state pensions, healthcare and education. Ultimately redistribution is decided by voters, who indicate their preferences via the democratic system.
  • Global redistribution has grown significantly over time. In 1900 just 1% of GDP was reallocated. This figure has grown to 18% today. Yet there exist profound intercontinental differences. In the USA just 14% is redistributed, compared to 22% in Europe. This reflects differing attitudes to welfare and individualism across the globe. Whilst poverty rates have fallen across the world, inequality is notably higher in the USA than in Europe.
Join now!

  • There exist four hypotheses for such intercontinental disparity:

  1. Inequality leads to more redistribution. Consider a democratic society, where income distribution appears as:

              POOR                   MEDIAN                                                RICH

In this society, the median voter is poorer than the average. It is in his interest to vote for a political party that will increase redistribution. As half the population are poorer than the median voter, any party that decrease redistribution will lose at election. Thus, ...

This is a preview of the whole essay