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on inequality. The process implied by this topic is not one in which decen-
tralized fiscal structures create exogenously new inequalities. Rather, the often
observed association between high income inequality and decentralized systems
of interpersonal redistribution reflects a different causal dynamic, one in which
the geography of inequality creates the conditions for its own sustainability
through the very process of selection of fiscal structures. The decentralization
of interpersonal redistribution does not operate as a mechanism that gener-
ates a particular outcome exogenously, but rather as a mechanism that, once
selected and established, sustains and reinforces the same patterns of inequality
that facilitated its emergence in the first place.
Arguably, if this “reproduction” effect of decentralization holds, the same
set of political and institutional conditions that mute the link between the ter-
ritorial patterns of inequality and the decentralization of public insurance sys-
tems should mediate the relationship between the territorial patterns of income
inequality and the overall levels of interpersonal inequality. In other words, the
relationship between interregional and interpersonal inequalities should be a
function of the same political process that drives the selection of the transmis-
sion mechanism, that is, decentralization itself. Hence, the last hypothesis on
the interplay between economic geography and representation (hypothesis 2.c):
the association between interregional inequality and overall income inequality
in the union should be the strongest in unions with centrifugal systems of rep-
resentation. In what follows, I evaluate this claim by contrasting two models
of the determinants of interpersonal income inequality in the OECD.
The dependent variable is the series of Gini coefficients for disposable income
inequality provided by the Luxembourg Income Study (LIS). The particular
indicator used here captures the distribution of income post taxes and trans-
fers for the entire population. The specification includes a number of controls
directly drawn out of the literature on inequality in advanced industrial soci-
eties: (a) political and institutional factors that affect redistribution other than
decentralization, reflective of the alternative accounts available in the liter-
ature; (b) variables conditioning the distribution of disposable income that
relate to demographic processes, general economic conditions, and the struc-
ture and organization of the labor market (which are known to be major deter-
minants of wage inequality: Rueda and Pontusson
2000
; Wallerstein
1999
; and
(c) the effects of previous redistributive policies on pre-tax income inequality
(Beramendi
2001
). The inclusion as explanatory variables of the incumbent's
ideology and the level of economic coordination, along with the level of decen-
tralization of redistribution, satisfy the controls required in (a). As an indicator
of government partisanship, I use a scale ranging between 1 and 4, with higher
values indicating incumbency by left parties or coalitions (for details see Cusack
and Engelhardt
2002
). In turn, I use the indicator constructed by Hall and Gin-
gerich as a measure of economic coordination (2009). This is a time invariant
scale ranging between 0 and 1 that captures coordination within the labor mar-
ket, within capital, and between labor and capital. Values closer to 1 indicate
higher levels of coordination. The specialized literature has consistently shown
