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© 2021 International Monetary Fund
WP/21/xx
IMF Working Paper
Institute for Capacity Development
The Political Economy of Inclusive Growth: A Review
Prepared by Barbara Dutzler, Simon Johnson, and Priscilla Muthoora 1
Authorized for distribution by Valerie Cerra
March 2021
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Abstract
In this paper, we review the role of the political economy in inclusive growth. We find that political economy forces on the demand and supply side have weakened redistribution over time and contributed to a new wave of populism. We document growing support for a rethink of the social contract to make growth more inclusive and discuss some of its broad elements.
JEL Classification Numbers: D72, D31, O11
Keywords: Political Economy, Inequality, Redistribution, Growth
Authors’ E-Mail Addresses: bdutzler@jvi.org; sjohnson@mit.edu; pmuthoora@imf.org
Contents
Abstract
I. Introduction
II. Demand for Redistribution: Theory and Practice
A. Political participation and preferences for redistribution
B. What other factors shape preferences?
III. The ‘Supply’ of Redistribution
A. Setting the stage for redistribution: Welfare States
B. Measuring pro-poorness of redistribution
IV. Which Political Regimes Deliver More Redistribution?
A. Redistribution under Proportional and Majoritarian Representation
B. Redistribution with Changing Political Cleavages
C. Redistribution under Populism: Then and Now
D. Redistribution under Populism: The Outcome
E. A Tipping Point?
V. The ‘How’ and ‘When’ of Redistribution
A. ‘Pre-distribution’ versus ‘Redistribution’
B. What are the constraints?
C. Lessons from International Experience
D. The COVID-19 Pandemic: A Game Changer?
E. Policy Options
VI. Concluding Remarks
References
Figures
Figure 1. The Income Skew of Voter Turnout in Advanced Economies
Figure 2. Determinants of Support for or Opposition to Redistribution
Figure 3. Public Social spending in the OECD (Percent of GDP)
Figure 4. Change in Income Inequality and Social Protection: 2000-2018
Figure 5. Social Protection and Labor Programs (SPL)
Figure 6. Vote Shares in European Countries
Figure 7. Evolution of Democracies and Autocracies since 1800
Barbara Dutzler: Joint Vienna Institute; Simon Johnson: MIT Sloan School of Management; Priscilla Muthoora: International Monetary Fund. We thank Valerie Cerra, Moya Chin, Hamid Davoodi, Barry Eichengreen, participants in the Inclusive Growth book seminar series organized by the IMF Institute for Capacity Development, and colleagues from the IMF for useful comments and suggestions. We also thank Christina Fong, Vincent Mahler, and Piotr Paradowski for permission to reproduce their data. This is a draft of a chapter that has been accepted by Oxford University Press for publication in the forthcoming book “How to Achieve Inclusive Growth?”, edited by V. Cerra, B. Eichengreen, A. El-Ganainy, and M. Schindler, due for publication in 2021.