Rent Seeking into the Income Distribution

This paper uses cross-sectional data from the 50 U.S. states to explore the impact of special- interest groups on the distribution of income. Holding educational attainment, median income, state government expenditures relative to gross state product, population density, race and other factors constant, we find that incomes are distributed more unequally (the Gini coefficient is higher) in states where interest groups have greater influence on the political process. Combined with a further result suggesting that public spending tends to level the income distribution, ceteris paribus , a key empirical implication of the analysis is that interest groups promote inequality primarily through off-budget channels.