Income Distribution, Welfare, and Economic Growth: Evidence Towards Social Investment in American States

Document Type


Presentation Date

Spring 4-14-2012

Conference Name

Midwest Political Science Association (MPSA) Annual National Conference

Conference Location

Chicago, Illinois


Efficiency and equity are key values in democratic societies. The relationship between
economic growth and redistribution has been theorized and empirically tested in many
studies (Burtless 2003; Ashby and Sobel 2007; Frank 2009). However, scholars provide
conflicting theoretical expectations and empirical evidence suggested is inconsistent. The
impact of economic growth on income distribution does not seem to be unidirectional.
Doucouliagos & Ulubasoglu (2008) argue that the relationship is contingent upon social,
cultural, and demographic institutions. Inconsistent empirical evidence seems to be aligned
with the differences in social, cultural, and demographic institutions across nations.
Accepting Doucouliagos & Ulubasoglu (2008)’s argument, this study seeks to find the link
among income distribution, welfare, and economic growth using the case of the U.S. States.
The United States have experienced economic growth and higher income inequality over a
couple of decades. Does this indicate that efficiency sacrifices equity (Okun 1975)? Few
studies have been conducted to disentangle the relationship and clarify underlying
mechanisms. This study finds a positive impact of the welfare state on income distribution
and also finds that an equal income distribution leads to higher economic growth rates. It
supports the social investment theory; an investment on productive welfare programs
promotes economic development (Midgley 1999).


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