“Fiscal Redistribution” must include a tax and transfer designed to reduce inequality

A new study by the political economists Dr Pantelis Kammas (University of Ioannin) and Dr Vassilis Sarantides (University of Sheffield) looks at the behaviour of incumbent governments in “new democracies”.

Previous research work tends to assume that these governments behave opportunistically around elections, adopting generous and expansionary fiscal policies in order to improve their chances of staying in office.

Kammas and Sarantides argue that while these governments do adopt redistributive policies to improve their re-election prospects, they also do this in order to signal to the population that democracy works; this can prevent a reversion to a non-democratic regime at a time of high vulnerability.

This is important because while it is frequently argued that only anti-democratic elites like military groups and oligarchs, can pose a serious threat in newly established democracies, the evidence strongly suggests that the support of the public towards democracy cannot be taken for granted. A few years after the democratisation in Brazil, for example, the poorest citizens were the least supportive of democracy.

Kammas and Sarantides develop a framework which allows them to examine fiscal redistribution around elections when democracy is not “the only game in town” and there is a threat of revolution from some groups of agents. They analyse data for a panel of 65 developed and developing countries over the past five decades.

Fiscal redistribution is defined as the reduction in income inequality, brought about by government via taxes and transfers. Their findings indicate that only in countries characterized as young democracies do elections exert a positive impact on fiscal redistribution.