Constituencies in India where parliamentary elections have been closely fought have lower income inequality and a bigger middle class. That is the central finding of analysis of the economic gains from greater political competition by Anirban Mitra and Shabana Mitra. Their research indicates that competing candidates in ”swing” seats make low-income groups a priority target for winning votes, which results in reduced inequality and catapults some of the poor into the middle-income group.
The study, which is forthcoming in the Economic Journal, suggests that there is a persistent and deep-rooted link between the degree of political competition within a constituency and the levels of inequality and polarisation of income groups. What”s more, an increase in electoral competition can lead to a reduction in income disparities and fuel the growth of a middle class. The authors conclude:
”Any policy for regulating the degree of political competition – quotas, say, or proportional representation requirements – should a priori assess and accordingly adjust for the resulting impact on inequality and the middle class.”
The issue of accountability is central to the concept of democracy. Elected politicians are answerable to their constituencies – and they have the authority and wherewithal to affect the economic conditions of the citizens.
This means that it is plausible that implementation of public schemes can be sensitive to elected politicians” perceptions of the electoral threat from political rivals. Previous research has stressed the role of electoral competition in directing public funds: the general consensus is that ”swing” constituencies – those that are electorally competitive – get more targeted resources on aggregate.
At the same time, within any constituency, the citizens are heterogeneous in terms of their incomes. This raises the question of who are the biggest gainers within a swing constituency: the rich or the poor? This is a key issue when trying to analyse the ultimate economic gains from greater political competition.
The authors of the new study posit that an increase in electoral competition leads to a reduction in income disparities and fuels the growth of a middle class. Their detailed empirical analysis using parliamentary elections in India strongly corroborates the theory.
The logic of the theory implies that in the attempt to capture as many votes as possible (particularly in swing districts), all competing candidates try to target the low-income groups. After all, it is the poor rather than the rich for whom an extra unit of money carries greater value. This results in a reduction of income inequality and catapults some of the poor into the middle-income group.
To test their theory, the researchers analyse data from Indian parliamentary elections combined with household-level consumption expenditure data rounds from the country”s National Sample Survey Organisation (1987-88 and 2004-05).
Although there have been several political parties in India since the 1950s, parliamentary elections were dominated by the Indian National Congress party for several decades. But the 1980s witnessed a tremendous proliferation of political parties at both the state and national levels. Several elections in the 1990s resulted in ”hung parliaments”, which meant that no single party obtained a clear majority of seats, thus beginning an era of coalitional politics.
The period analysed in this study corresponds to the time after the Congress party had lost its quasi-monopoly in the political arena – a phase in which national elections were more intensely fought.
In rigorous analysis of the data, the researchers find that a district that has experienced close elections tends to exhibit lower income inequality. The same is true for income polarisation, which is a measure of the size of the middle-income group.
The authors subject their primary findings to a battery of tests for their robustness. They use different methods of measuring the extent of electoral competition: the ”margin of victory” as captured by the difference in vote shares of the top two candidates in a constituency is their baseline measure.
They also use different measures of income inequality with the Gini index being the baseline measure. In addition, they account for the fact that constituencies look different in terms of population, urbanisation rates and ethnic and religious composition.
The core findings prevail when using the various alternative measures and accounting for the heterogeneity of the constituencies along various non-economic dimensions. This strongly suggests that the link between political competition on one hand and inequality and polarisation on the other is persistent and deep-rooted.
”Electoral Uncertainty, Income Inequality and the Middle Class” by Anirban Mitra and Shabana Mitra is forthcoming in the Economic Journal. Anirban Mitra is at the University of Oslo. Shabana Mitra is at the Centre for Public Policy, Indian Institute of Management Bangalore.