Context and objectives
To what extent can political activities of organized business interest groups explain the increase in economic inequality in recent decades ? In all advanced industrialized countries, inequality in incomes and wealth declined in the period from World War I to about the 1970s. Since then, inequality has risen sharply. Yet, this recent increase in inequalities varies considerably across countries, as Thomas Piketty shows. The resurgence of inequality is strongest in the United States, where the share of income going to the top one per cent increased from 8 per cent (1980) to 18 per cent (2010). The rebound of income inequality is much weaker in many parts of Europe. In Sweden, the income share of the top one per cent increased from 4 percent (1980) to 7 percent (2010). Similarly, in Germany, the share increased from 10 per cent to 12 percent in this period. In short, the return to high levels of inequality in recent decades is much more stronger in the United States than in Europe.
This project investigated the contribution of political activities by business interest groups to explaining these differences through comparative case studies of five countries, which are Germany, Austria, Denmark, Sweden, and the United States. The project focused on three policy fields: corporate taxation, inheritance taxation, and wage bargaining. The overall objective of the project was to thereby get a better understanding of the impact of business interest groups on the politics of social inequality. The findings of the project will be of relevance to European and national policy-makers, as well as to executives of business interest associations.
Overview of findings
The project concluded that the intensity of goal conflicts between the goals of social equality and the goals of business interest groups varies across policy fields. The following two examples illustrate this general point:
1. The study of wage bargaining found that statutory coverage extension serves as an important mechanism against the erosion of bargaining coverage. Statutory coverage extension extends coverage of collective agreements to firms that are not organized in the bargaining employers’ association. The study found that the attitudes of employers’ associations toward the use of statutory coverage extension vary significantly across countries. In Germany, for instance, employers’ association have since the 1990s turned against the use of statutory coverage extension, while in the Netherlands, in contrast, employers’ associations support its use. The project was able to show that such cross-national differences in employer attitudes are one important factor for explaining why the use of statutory coverage extension is viable only in some countries.
2. The study of reforms in corporate taxes and inheritance taxes found that the responsiveness of governments to business demands for tax cuts varies depending on, first, the expected effects of a tax cut on tax revenues, and second, the expected effects of a tax cut on voter behavior. Thus, the study found that governments tend to adopt business friendly cuts only when they do not undermine tax revenues and when they do not conflict with the preferences of voters. Where business demands for cuts conflict with revenue needs of governments, governments tend to adopt compensatory measures, such as combining a cut in the statutory tax rate (‘headline rate’) with a widening of the tax base, for instance, by closing down tax exemptions.
