Political economy of income distribution dynamics

Income distribution varies considerably across countries; it tends to become more equal with development in some countries, but just the opposite occurs in other countries. This paper provides a theoretical investigation of the persistent differences in income distribution across countries over time. Motivated by the relationship between income distribution and public spending at different school levels for a broad range of countries over the past 30 years, the analysis centers on the role of public education where specific investments interact with political involvement by different socio-economic groups. Socio-economic groups may form lobbies to influence education policy making. The formation of lobbies is endogenous. Persistent inequality is caused by persistent lobbying efforts of the wealthy that lead to an allocation of public education spending more biased toward them.