Elect left-wing politicians to fight income inequality? Really?

Income inequality is a major political topic these days. And politicians on the left of the political spectrum tend to promote their policies as ones that will reduce income inequality (typically through higher taxes for high-income households). But what is the actual track record of left-of-centre politicians in reducing income inequality? Note, that I explicitly exclude the left-wing nutjobs in Venezuela, Cuba, Bolivia, etc. who implement policies that are way beyond anything that is realistic in Western Europe or North America. Brandishing left-of-centre politicians in the United States or the UK as socialists and comparing them with Chavez and Castro is just a stupid bogeyman for people who have no arguments.

Instead, let’s look at a natural experiment that continues to take place in Germany. Since 2008, the salaries of civil service employees are no longer federally coordinated, but each state has the ability to set its own salary ranges for every state employee. 

But some German states are governed by right-of-centre coalitions (e.g. Bavaria), while other states are governed by left-of-centre coalitions (e.g. Berlin). And while state governments have little influence on the level of taxation for its citizens because the majority of taxes are federally levied, state governments can change civil service salaries with the stroke of a pen.

This offers the opportunity to compare income inequality amongst civil servants between left and right-leaning states. That’s what Björn Kauder, Manuela Krause, and Niklas Potrafke did. And the result was quite intriguing. Using six different measures of income inequality they found no evidence that inequality under left-of-centre governments was reduced more than under centrist or right-of-centre governments. In fact, if you look at the Gini coefficient of income inequality amongst civil servants, right-of-centre governments were more effective in reducing income inequality than left-of-centre governments.

Change of Gini coefficient of income amongst German civil servants

Source: Kauder et al. (2020).

Now, obviously, that is the case in Germany and it may be different in other countries, but I doubt it. In my experience, German politicians tend to be more reliable when it comes to following through on their election promises than politicians in other countries (not naming any here, but you know who you are). And the fact that left-of-centre politicians in Germany are unable to reduce income inequality where they could easily do it, leaves me with two possible interpretations. Either they didn’t know they could change income inequality amongst civil servants with the stroke of a pen – in which case they are incompetent at their job – or they did not want to change income inequality amongst civil servants – in which case they are full of it. You choose your own explanation.