Empirical Determinants of In-kind Redistribution: Partisan Biases and the Role of Inflation

This paper investigates how government ideology and inflation affect the government’s choice between cash transfers and in-kind transfers. Our hypotheses are based on three observations: (i) in-kind transfers create stigma, (ii) but make recipients less vulnerable to inflation; (iii) poor benefit recipients make up the core constituency of left-wing parties. Using dynamic panel data estimations for 32 OECD countries over the time period from 1980 to 2007, we provide evidence that the in-kind share of social benefits is lower under left-wing governments. This partisan bias is weakened when left-wing governments respond to inflation by increasing the share of in-kind transfers.