Rent Seeking into the Income Distribution

Abstract

There is a sizeable positive economics literature on the effect of government on the distribution of income. Mueller (1989, pp. 448–58) offers a good summary of such work. Obviously, the distributional impact of the public sector depends on the behavioral features of the model the analyst employs – and the assumptions he adopts – with respect to the incidence of public spending, taxes, debt and regulation. Owing to the wide range of analytical possibilities, no consensus has emerged concerning the magnitude and direction of government’s impact on the income distribution. Some scholars have argued that the middle class is the chief beneficiary of government-mediated wealth transfers (Stigler 1970), while others have found that, on balance, redistribution runs from the rich to the poor (Reynolds and Smolensky 1977). Assessing these conflicting conclusions, Mueller (1989, p. 455) observes that the supposition ‘that some government policies – taxes or expenditures – are intended to confer redistributional gains on particular interest groups cannot be questioned.’ He goes on to say, however, that ‘what the literature does not illuminate is the amount of government activity explained in this way and its net impact on the distribution of income.’ This paper begins closing the gap identified by Mueller. In particular, we ask, what is the net impact of interest groups on the distribution of income? Because the interest-group theory of government (McCormick and Tollison 1981) makes no a priori prediction about how incomes are impacted by interest group activity in the polity, our approach is strictly empirical. The paper is organized as follows. Section II briefly explores the analytical possibilities. Empirical evidence from the U.S. states is presented in Section III. There we find that, other things being the same, incomes are distributed more unequally (the Gini coefficient is higher) in states where special interest groups exert greater influence on the political process. Section IV concludes.

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