10.1177/0010414004268849COMPARATIVE POLITICAL STUDIES / November 2004Mahler / ECONOMIC GLOBALIZATIONECONOMIC GLOBALIZATION,DOMESTIC POLITICS, ANDINCOME INEQUALITY INTHE DEVELOPED COUNTRIESA Cross-National StudyVINCENT A. MAHLERLoyola University ChicagoThis article assesses the impact of economic globalization and domestic political factors onincome inequality and state redistribution in the developed countries over the past two decades,using household-level data from the Luxembourg Income Study that are more detailed, accurate,and cross-nationally comparable than those used in previous empirical work. It examines threemajor modes of international integration—trade, direct foreign investment, and internationalfinancial flows—as well as four domestic political variables—the partisan balance of nationalcabinets, electoral turnout, union density, and the centralization of wage-setting institutions. Thestudy finds only scattered relationships between global integration and income distribution orredistribution but reasonably strong positive relationships between several domestic politicalvariables and an egalitarian distribution of income and/or extensive state redistribution. Thesefindings are consistent with a growing number of studies that emphasize the resilience ofdomestic political factors in the face of economic globalization.Keywords: economic globalization; income inequality; developed countries; cross-nationalanalysis; state redistributionDuring the past decade, few issues have generated as much debateamong scholars, policy makers, and political activists as the relation-ship between economic globalization, domestic politics, and incomeinequality in the developed world. The central aim of this article is to offer anempirical assessment of the relative impact of international and domesticfac-1025AUTHOR’S NOTE: I would like to thank David Jesuit, Harvey Palmer, David Bradley, and twoanonymous reviewers for their helpful suggestions. Earlier versions of this article were pre-sented at the 2002 annual meeting of the Southern Political Science Association in Savannah,COMPARATIVE POLITICAL STUDIES, Vol. 37 No. 9, November 2004 1025-1053DOI: 10.1177/0010414004268849© 2004 Sage Publicationstors on the distribution of income generated by the market and the ability andwillingness of states to redistribute it. Two basic analyses are conducted. Thefirst and most extensive is an unbalanced, pooled, cross-sectional time-series(CSTS) analysis covering the period between the early 1980s and the early2000s. This analysis uses measures of pregovernment earnings, post-government disposable income, and fiscal redistribution that have been cal-culated from 59 household-level income surveys available from the Luxem-bourg Income Study (LIS), which provides by far the most comprehensive,detailed, and accurate cross-national data on income inequality currentlyavailable.1A second, more limited, analysis offers a full-scale, pooled, CSTSanalysis of less complete and comparable annual data from non-LIS sourceson pregovernment wage dispersion between the early 1970s and the early1990s.Among the questions addressed in this article are the following: Is integra-tion into the world economy systematically related to domestic incomeinequality across countries or over time? Can any economic dislocationresulting from globalization be ameliorated by the redistributive activities ofthe state? Are there differences in the impact of the three main modes of inter-national integration (trade, direct foreign investment, and global financialflows)? To what extent is inequality the product of domestic variables, suchas electoral participation, partisanship, or the nature of labor relations? Ifdomestic factors are important, which matter the most?INTERNATIONAL AND DOMESTIC SOURCESOF INCOME INEQUALITY AND REDISTRIBUTIONECONOMIC GLOBALIZATIONAs might be imagined, the relationship between global economic integra-tion, income inequality, and public social benefit provision has been the sub-ject of widely varying interpretations in the scholarly literature. On one hand,1026 COMPARATIVE POLITICAL STUDIES / November 2004Georgia, and at the 2003 Conference on Inequality, Poverty and Human Well-Being, sponsoredby the World Institute for Development Economics Research of the United Nations University inHelsinki, Finland. This research was supported in part by an Integrated Research Infrastructurein the Social Sciences grant supporting residence at the Luxembourg Income Study in 2001. Anearlier version is available as Luxembourg Income Study Working Paper 273 (July 2001).1. The Luxembourg Income Study is a cooperative research project among the national statis-tical agencies of over 25 countries. For detailed descriptions, see Atkinson, Rainwater, andSmeeding (1995); Gottschalk and Smeeding (1997); and the Luxembourg Income Study’s(2003) Web site.many commentators have argued that there is a clear positive relationshipbetween economic globalization and market income inequality (see, e.g.,Hurrell & Woods, 1995; Reich, 1992; Tonelson, 2000). In this view, the rap-idly growing movement of goods and capital throughout the world has drivena wedge into domestic economies, separating those who are well positionedto gain from globalization from those whose status is increasingly under-mined by it. High-income groups, for their part, have reaped important newbenefits from the enhanced opportunities associated with operations on aglobal scale. Low-income groups, on the other hand, have found themselvessubject to increasingly ruthless and unforgiving international competitionthat has seriously jeopardized their wages, benefits, and job security.From this critical perspective, economic globalization has had much thesame pernicious effect on income received from the public sector as on mar-ket income. Governments, in this view, have found themselves in cutthroatcompetition to limit the costs of public benefits in an effort to retain theirpositions in export and capital markets, resulting in a “race to the bottom”that has “hollowed out” long-standing systems of social protection (Mishra,1999; Page, 1997). Moreover, it is argued, the growing mobility of capital hasmade it increasingly possible for corporations to escape taxation, forcinglabor to bear more of the burden of supporting the social programs thatremain (Rodrik, 1997, pp. 54-55). In the view of critics, this downward pres-sure on social benefits compounds the income