redistribution are also likely to vary depending on the total population of the country and the proportion of the population that is older than 65. The regressions also control for the proportion of the population that resides in rural areas, both because the demand for redistribution is likely to be influenced by urbanization and because countries with more rural inhabitants are likely to have a different economic structure, affecting the possibilities for redistribution, than more urban countries.

# Identification issues

The literature on the political economy of redistribution typically tests whether a particular characteristic of a country influences the extent to which government fiscal policies redistribute income. The threat to causal inference, across the literature, is that unobserved factors drive both the characteristic for which we control here (e.g., democracy, the distribution of market incomes, or a country’s electoral rules) and the extent of measured redistribution.

In particular, unobserved forces that influence the distribution of market incomes may also affect the political characteristics of the country and the amount of fiscal redistribution that it undertakes. These forces may differ across countries. For example, countries in which economic elites exert significant power may exhibit greater instability of political parties; more regulatory barriers to entry into product and labor markets, creating significant inequality in market incomes; and greater use of fiscal redistribution to attenuate political unrest. To address these and other unobserved variables, we control for country fixed effects. As a result, none of our findings are identified based on cross-country variation.

It is also possible that time-varying, unobserved circumstances lead both to a shift in fiscal redistribution policy and in the age of political parties. For example, an unobserved surge in popular resentment against inequality may spur the introduction of new, left-wing political parties and greater fiscal redistribution, accounting for the findings we present below. Our results, however, are robust to excluding countries with young left-wing governing parties.

# **3. Results: Do redistribution results hold if we include only transfers but omit direct taxes?**

Our data include many more countries, exhibiting greater variation with respect to geography, income and political regime, than previous analyses have been able to use. However, as explained previously, some of the additional surveys we gathered do not have information on direct taxes paid (wages taxes withdrawn at source). This means that while we can study the distributional effect of social transfers (examining gross incomes), we can say nothing about the distributional effect of direct taxes (by examining disposable incomes).

Previous research has found that the post-redistribution income share of any income group is inversely related to its pre-redistribution income share, using a smaller sample and disposable, rather than gross incomes to measure redistribution.<sup>13</sup> Before using our expanded data to draw inferences about the effects of political party characteristics on redistribution, this section verifies that previous results linking inequality and redistribution hold across this larger set of country observations, using gross rather than disposable incomes. First, we ask whether the use of gross

> 13 Milanovic (2010) finds that among the 19 established democracies in the LIS data, more (market) unequal countries redistribute more, poorer income deciles gain more from redistribution the poorer they are, and there is thus a negative relationship between a decile’s share of market incomes and the amount it gains from redistribution. These two results are jointly termed by Milanovic (2010), the “redistribution hypothesis”.

11