Income Distribution in the United States

Abstract

Political action has affected postwar income distribution in the United States mainly through policy-induced variations in macroeconomic activity and government transfer benefits in proportion to total income. We present a small dynamic model of the connections among the partisan balance of power, macroeconomic fluctuations, transfer spending trends, and income distribution outcomes. The model is based on the premise that the parties have different distributional goals, and it is designed to identify how shifts in party control of the presidency and the strength of the parties in Congress have affected the distribution of after-tax, after-transfer income by influencing cyclical economic performance and the flow of resources to transfer programs. We therefore extend the “partisan theory” of macroeconomic policy to the domain of income distribution outcomes.