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Inequality, Social Insurance, and Redistribution
Abstract
Is the political support for welfare policy higher or lower in less egalitarian societies? We answer the question using a model of welfare policy as publicly financed insurance that pays benefits in a redistributive manner. When voters have both redistributive and insurance motives for supporting welfare spending, the effect of inequality depends on how benefits are targeted. Greater inequality increases support for welfare expenditures when benefits are targeted to the employed but decreases support when benefits are targeted to those without earnings. With endogenous targeting, support for benefits to those without earnings declines as inequality increases, whereas support for aggregate spending is a V-shaped function of inequality. Statistical analysis of welfare expenditures in advanced industrial societies provides support for key empirical implications of the model.
... This approach echoes Rawls' (1971) 'veil of ignorance', suggesting that so long as people are uncertain about their societal position in the future, they will have incentives to support policies in favour of the most disadvantaged. Given that people can be risk averse, demand for redistribution can largely depend on peoples' risk exposure, that is, the extent to which they think that they will need redistributive support given the possibility of being poor in the future (Moene and Wallerstein, 2001). The expectation here is straightforward: The higher the risk exposure, the more individuals will be in favour of redistribution (Rehm, 2009). ...
... This suggests that this positive association becomes weaker as an individual's household income increases and, more specifically, that the effect is marginally weaker for the well-off (as the RMR model would expect). Nevertheless, a clear positive association across different income groups suggests that even individuals not located at the lowest income levels tend to support economic redistribution in the long run (also in line with the risk exposure framework; Drazen, 2000;Moene and Wallerstein, 2001;Rehm, 2009). All in all, these findings provide empirical evidence in line with the scholarship arguing that individuals tend to update their levels of support for redistribution with rising inequality, often experiencing parallel shifts in their redistributive preferences (e.g., Enns and Kellstedt, 2008;Gonthier, 2017;Soroka and Wlezien 2009). ...
Although extensive research indicates that economic inequality drives public demand for redistribution, longitudinal evidence of this association in unequal contexts remains scarce. Using pooled cross-sections of surveys from over 140,000 individuals consistently observed between 2008 and 2019, this study tests the inequality-redistribution nexus in Latin America. I examine both the general association between inequality and public demand for redistribution as well as the conditional effect of individual-level income. Main results suggest that public preferences over redistribution systematically react to rising inequality. Findings further indicate that this effect is consistent across income groups. In line with a growing body of work, public demand for state-led redistribution increases as inequality grows, holding household income constant, suggesting that individuals tend to update their redistributive preferences in parallel and the gap in support for redistribution among income groups is small given the region’s sharp levels of economic inequality.
... On the other hand, changes in tax progressivity have minor and often insignificant effects, suggesting that indirect behavioral responses play a more substantial role when it comes to tax progressivity. These findings imply that governments aiming to reduce inequality should emphasize increasing social expenditure rather than solely relying on enhancing the progressivity of income taxes.Furthermore,Moene & Wallerstein (2001) explored the relationship between political support for welfare policy and income inequality, utilizing a model conceptualizing welfare policy as publicly-funded insurance with redistributive benefits. They found that the impact of inequality on support for welfare expenditures is contingent upon how benefits are targeted. ...
This dissertation investigates the causes behind the divergent income inequality trends in Central and Eastern European (CEE) countries, focusing specifically on six countries: Hungary, Poland, Czechia, Slovakia, Bulgaria, and Romania. The dissertation is structured into three interconnected studies: a systematic literature review and two empirical studies.
The systematic literature review provides a comprehensive perspective on the literature on income inequality in CEE countries. The study employs systematic literature review and network analysis to explore the topic, organized around four thematic frameworks: concepts and assessments, evidence, causes, and the role of policy. These thematic strands collectively offer a detailed overview of income inequality in CEE countries and highlight key research gaps for future exploration. The review underscores several critical areas for improvement within CEE studies. These include addressing gaps in geographical and temporal coverage, using alternative indicators of income inequality, and examining the causes behind the diverging trends of income inequality in the region. Additionally, we need to deepen our understanding of the factors influencing income inequality in these countries, which presents a substantial opportunity for future research.
The first empirical study explores the determinants of wage inequality and its fluctuations using micro data from the European Union Statistics on Income and Living Conditions (EU-SILC) for the period 2009-2018. Beyond offering a detailed account of wage inequality trends in these countries, the study investigates demographic and micro-level factors, including the effects of changes in the minimum wage. The study employs RIF regression and RIF decompositions across various inequality measures. The findings reveal that changes in wage inequality across these countries are primarily driven by wage structure effects, irrespective of whether wage inequality increased or decreased. Notably, changes in the returns to education and returns to permanent employment contracts are crucial in explaining decreased wage inequality. The increases in wage inequality in Hungary and Bulgaria are defined mainly by the changes in the estimated constants instead of micro-level determinants. The changes in the minimum wage explain most of the unknown factors in Bulgaria, and the spillover effects of the minimum wage may explain most of the unknown factors in Hungary.
The second empirical study investigates the redistributive effects of taxes and social transfers on income inequality using EU-SILC microdata from 2010 to 2019. It provides an overview
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of redistribution trends and examines the relative contributions of various income sources, focusing on taxes and social transfers, to the levels and changes in income inequality. The study employs decomposition analyses. The study reveals diverse patterns in the evolution of redistributive effects of taxes and transfers across countries. From 2009 to 2018, the average reduction in market income inequality ranged from 24.5% in Bulgaria to 43.6% in Czechia. The findings underscore that while labor market conditions predominantly influence income inequality, the effectiveness of redistribution policies emerges as a crucial factor. Market income, mainly from labor, is the primary determinant of income inequality across countries. The study highlights the substantial impact of taxes and non-elderly benefits in effectively reducing inequality, with taxes exerting a more pronounced influence than non-elderly benefits in most countries.
Together, these studies underscore the complexity of income inequality dynamics in six CEE countries, offering valuable insights and laying a foundation for future research to understand better and address the underlying causes of these disparities.
... The introduction of welfare state programmes serves different purposes and responds to various needs in the population (Moene & Wallerstein 2001). Welfare programmes provide an organized and predictable way of ensuring redistribution of resources from some individuals to others (e.g. from taxpayers to programme benefit recipients). ...
This chapter summarizes our current knowledge of the relationship between political regimes and the development of welfare states in developing countries. It highlights the disconnect between high demand for welfare programmes in poor countries and the variation in welfare provision across different regimes. It reviews the standard model of political economy by which democracies are expected to adopt more universal redistributive policies than autocracies because of more extensive political participation by the poor. It shows that empirical evidence does not consistently support this model. The chapter then presents alternative theoretical frameworks to argue that the standard view often misrepresents politics of social protection in both democracies and autocracies. First, welfare programmes can serve autocracies by ensuring regime stability through targeted social insurance schemes or to control the population and ruin competing elites. Second, democracies can be 'safeguarded' against redistribution through anti-majoritarian institutions or when the median voter, for various reasons, does not favour redistribution.
... Previous studies have identified significant factors that shape preferences for social policy and redistribution. These encompass interest-related factors such as income, occupation, skills, as well as other-regarding factors such as social identity and the norms of fairness (Alt and Iversen, 2017;Iversen and Soskice, 2001;Moene and Wallerstein, 2001;Rehm, 2016;Rueda and Stegmueller, 2019). Furthermore, some studies have proposed that the degree of subjective economic insecurity wields an impact on individual preferences for social policy (Anderson and Pontusson, 2007). ...
How do subjective economic threats from globalization and technological changes shape social policy preferences? In this article, we argue that structural economic shifts increase subjective job insecurity. Consequently, individuals are more likely to seek immediate compensation for anticipated income and job losses, leading to a preference for short-term social consumption policies over social investment policies focused on long-term education and skill development. We find strong evidence of the effects of automation threats in the Organization for Economic Co-operation and Development (OECD) Risks that Matter 2020 survey. In addition, an original survey experiment conducted in South Korea shows that globalization threats have an even stronger impact than automation threats on support for social consumption policies. Our study demonstrates that rising economic insecurity, driven by structural changes, is increasing the demand for social consumption policies at the expense of social investment in an era of austerity. This suggests a potential reshuffling of pro-welfare coalitions.
... Furthermore, Moene and Wallerstein (2001) explored the relationship between political support for welfare policy and income inequality, utilizing a model conceptualizing welfare policy as publicly-funded insurance with redistributive benefits. They found that the impact of inequality on support for welfare expenditures is contingent upon how benefits are targeted. ...
This review offers a comprehensive perspective on income inequality literature in Central–Eastern European (CEE) nations, with a specific focus on six countries: Bulgaria, Romania, Poland, Hungary, Czechia, and Slovakia. By thoroughly examining existing research, this review uncovers the underlying factors and root causes contributing to varying income inequality levels and trends across CEE countries. The investigation is conducted through a systematic literature review and network analysis, focusing on the literature published since 1990, mainly on recent studies. The review is structured around three thematic frameworks (concept and measures, evidence, and causes). These three strands of the literature review not only offer a comprehensive picture of income inequality in CEE countries but also identify critical research gaps for further studies. The review underscores several critical areas for improvement within CEE studies. These include addressing gaps in geographical and temporal coverage, utilizing alternative measurements of income inequality, and investigating the causes of diverging trends in income inequality among CEE countries. Moreover, there is a pressing need to expand the understanding of the determinants influencing income inequality in these nations, which presents a significant opportunity for future research.
... However, scholars are increasingly extending this narrow view with a more nuanced view that adds a role for individuals' expected economic status as well as anxiety about possible future economic hardship. Individuals' economic prospects are subject to external shocks such as globalization, and redistribution can work as a social insurance against the downside risks of such shocks (Kato and Takesue, 2023;Moene and Wallerstein, 2001). Similarly, individual expectations of upward instead of downward economic mobility (e.g. ...
A fundamental insight of various trade theories is that trade does not have a universally negative effect on different business activities in different countries. Rather trade’s impact varies concomitantly with the specific country and activity considered. This empirical note expands prior work linking trade to redistribution preferences by using sectoral comparative advantage to incorporate the notion that trade may hurt the prospects of a specific group in one country (say workers in a highly tradable or offshorable industry) but will simultaneously benefit this same group in another country. We expect that individuals in industries with a weaker (stronger) comparative advantage suffer (benefit) more from trade and are therefore more (less) in favor of redistribution. Empirical results confirm this expected effect of comparative advantage on redistribution preferences. We conclude that considering countries’ comparative (dis)advantage in certain activities provides a deeper and more general understanding of the political consequences of trade.
... Reciprocity also shapes perceived welfare deservingness (Kristov et al, 1992;Moene and Wallerstein, 2001;Shayo, 2009). Here, reciprocity captures the degree to which a welfare recipient earns public support by contributing to the society as opposed to free-riding on public support (van Oorschot, 2000). ...
Previous studies have shown that America generally has a low level of support for redistribution, in large part due to racial prejudice, particularly toward the poor. The COVID-19 pandemic, however, has increased public attention to low-income workers’ essential roles in society. Has this increased attention to low-income workers promote public support for redistribution? This article examines how priming about low-income workers’ (1) essential roles and (2) race, shaped individuals’ redistributive preferences. Our findings demonstrate that an emphasis on essential workers increased appreciation of their contribution to society and support for pandemic-related benefits for these workers. However, it did not increase support for redistribution or welfare programmes in general. In addition, while we found negative effects of a Latino cue, particularly among white respondents, this effect weakened when information about workers’ work ethics and other attributes was provided. Our findings have implications for understanding public support of redistribution and communicating government social welfare programmes.
The insurance sector has grown tremendously over the years and has a huge potential toward the workforce employed in the unorganized sector. India needs comprehensive social insurance schemes to benefit the workers in this sector. The present study is an attempt to examine the impact of risk aversion on support for social insurance schemes in India with the mediating effect of redistributive preferences. The current study is survey‐based research. A non‐probability sampling technique has been used to collect data from 417 respondents residing in the North‐east region of the capital city, Delhi. The data was collected between October 2023 and February 2024. The present study employs structural equation modeling and Hayes' PROCESS Macro module. Results show that risk aversion positively influences redistributive preferences and support for social insurance schemes. The effect of redistributive preferences on support for social insurance is also found to be positive and significant. The moderated mediation effect of redistributive preferences on support for social insurance is also found to be significant. As social security programs are funded by redistributing income through higher taxation policies, individuals with higher risk preferences may opt for such insurance programs. The study will help social groups and policymakers design the schemes in a way that can benefit those working in the unorganized sector at large. The present study has been an attempt to empirically understand the importance of risk aversion and altruism in support of social insurance programs.
It is a long‐standing view that citizens support the welfare state because it provides insurance against future income losses. However, existing studies have struggled to isolate the effect of future‐oriented material self‐interest from normative and political predispositions. Using population‐wide, administrative panel data from Denmark, I study citizens' choice to take up government‐funded social insurance in times of economic uncertainty: a critical case for material self‐interest to be at stake. Using as‐if random variation in exposure to signals of unemployment risks, I show that economic uncertainty increases the probability of buying supplementary unemployment insurance coverage. Linking the administrative records to individual‐level survey data reveals that exposure to unemployment risk signals increases feelings of job insecurity, further suggesting that economic worries shape citizens' behavior within the welfare state. These findings highlight the role of material self‐interest in influencing the welfare state, providing valuable insights for policymakers when designing social insurance policies.
This paper analyzes public enterprise pricing as a form of redistributive politics. Beyond regulation and public goods, governments provide goods and services on a fee‐for‐service basis. Governments recover all or part of the costs of these services through user charges. These charges distribute costs to users in different ways, depending on how they are structured. As such, public enterprise pricing can be a form of redistributive policy similar to taxation, with governments setting prices more or less progressively. Adapting a classic model of taxation, we argue that democratic governments respond to increasing income inequality by setting public enterprise prices more progressively. The regulatory commissioners who set prices for private utilities have less incentive to respond to voter preferences and so are less likely to respond to local income inequality with progressive pricing. Analysis of pricing in US water utilities affirms that local income inequality correlates with the progressivity of water prices for local government utilities in ways that are consistent with the political logic of redistributive policy. We find no correlation between income inequality and progressivity for private utilities. These findings highlight the importance of understanding government enterprise prices as public policy and demonstrate the applicability of a classic political economy model to local government.
A major debate in political economy concerns whether right-wing populism is driven primarily by economic or cultural factors. This debate has proved challenging to resolve, because culture and economics covary. We leverage an economic shock induced by business lockdown policies during the COVID-19 pandemic to isolate the impact of economic motivations. While lockdowns protected public health, they also imposed severe economic hardship, disproportionately affecting workers without college degrees. We argue in the U.S., those most exposed to the economic costs of lockdowns were more likely to shift support towards a populist president. Using a staggered difference-in-differences event study approach, we estimate the effect of state lockdowns on support for Donald Trump, finding a significant increase in Trump approval in states with high risk of downsizing. Our findings illustrate how right-wing populism can rise when the pursuit of “unfunded public goods”–such as public health, environmental sustainability, new technologies—has concentrated and uncompensated costs.
This study examines the impact of social financial grants on poverty alleviation in rural Indonesia, using a demographic perspective and econometric analysis. By utilizing first‐hand survey data from various rural districts, the research investigates the effectiveness of these grants in improving household income, reducing poverty rates, and promoting economic stability. The study employs econometric tools such as regression analysis, difference‐in‐differences (DiD), and propensity score matching (PSM) to assess the causal relationship between social financial grants and poverty alleviation. The findings provide insights into the demographic factors influencing the effectiveness of these grants and offer policy recommendations to enhance their impact on rural poverty in Indonesia.
Many well‐established theories argue that welfare state policies create, and are created by, support coalitions between different income groups. Empirically, however, relatively little attention has been paid to the coalitions forged by the group that matters most according to these theories: middle‐income earners. To address that gap, this article investigates the income differences underlying popular support for two radically opposing redistributive reforms, going in the direction of either a fully means‐tested welfare state targeting the poor only or a universal basic income. Using data from the European Social Survey, we confirm the long‐standing hypothesis that middle‐income earners align with high‐income earners against means‐tested welfare. Regarding universal basic income, income differences prove considerably smaller. Furthermore, contrary to much prior research, our findings provide little evidence for the prediction from policy feedback theory that the support coalitions underlying these reforms are shaped by the progressivity of countries' tax‐and‐transfer systems.
Inequality is a crucial issue in Latin America and the Caribbean, alongside very low productivity gains over the last 60 years and low levels of investment and efficiency. Most literature, especially on the political economy determinants of these problems, has considered these issues individually. This article revisits the discussion on the political economy of redistribution (or lack thereof) in the region, embedding it in a broader political economy debate. We characterize the region and its countries in terms of the size of the public sector, the extent of fiscal redistribution and the efficiency of public action. We summarize various strands of literature that explain elements of the fiscal vector individually and provide a framework that combines elements from several strands, explaining why different countries exhibit different configurations of government size, redistribution and efficiency.
While there is a strong cross-sectional association between social class and political attitudes, recent research—based on longitudinal data—finds that changes in class are, at most, weakly related to changes in such attitudes. One common explanation for this finding is that early life socialization affects both social class and political attitudes and that class has little, if any, direct effect on them. In this manuscript, we explore an alternative explanation that centers on the importance of cumulative class experiences for the long-term evolution of attitudes. To evaluate this perspective, we leverage data from the British Household Panel Survey, which contains measures of economic values that span up to 16 years, as well as complete work-life histories of respondents that allow us to track individual class experiences over people’s life span. Our findings show that cumulative class experiences are strongly associated with the development of economic values.
This study investigates how the economic crisis associated with the COVID-19 pandemic impacted support for social assistance in Germany. We formulate our expectations drawing from the classical political economy literature on self-interest and the burgeoning research on the role of solidarity. On the one hand, we hypothesize that only low-income individuals impacted economically by COVID-19, who can benefit from social assistance, will support its expansion. On the other hand, we expect higher-income individuals affected economically by COVID-19 to be more supportive of social assistance, even though they do not benefit from it, and less likely to consider welfare recipients ‘undeserving’ compared to higher-income individuals not economically affected by the pandemic. We argue that first-hand crisis experiences update people’s beliefs about how luck impacts one’s economic situation in the presence of an exogenous shock. We combine observational and experimental data from an original survey collected in Germany in April 2021 to test our expectations. On average, low-income respondents appear to be the most vigorous supporters of social assistance, but their support is not conditional on their experience of the COVID-19 pandemic. Instead, we find that the support for more social assistance among affluent individuals depends on the economic impact of the pandemic. We experimentally manipulated the deservingness of welfare recipients and found that better-off respondents impacted by the pandemic were less likely to penalize even the most ‘undeserving’ welfare beneficiaries. We suggest that solidarity between classes in hard times may occur through a convergence of the deservingness perception among individuals. The article has broader implications for studying the effect of crises on solidarity and the conditional nature of class-based explanations for support for different welfare policies.
Authoritarian rulers have—unlike incumbents in democracies—frequently, but not always, reduced public expenditure on social services while curtailing welfare programs for the poor and disadvantaged groups, risking civilian discontent. Why and when do autocrats curtail public social spending and broad-based welfare programs that benefit vulnerable societal groups? We suggest here that social spending and welfare program outcomes in autocracies are influenced by the interaction between dictators and the financial elite in the ruling coalition who operate banks and finance companies. Specifically, when the financial-asset size of banks and finance companies is sufficiently high, dictators will be critically dependent on them to fund private and club goods to both buy off other elites and fund patronage for societal groups who support their rule. Since autocrats depend on such funding to survive in office, they have political incentives to cut public social expenditures and broad-based welfare programs to appease the financial elites who favor retrenchment of public social spending and welfare programs to protect their arbitrage opportunities. Our hypotheses find strong statistical support in a global pooled sample of 148 countries (1972–2015). The results hold for several specifications and econometric robustness checks.
In a 2003 article, Karl Moene (University of Oslo) and Michael Wallerstein (Yale University) demonstrated that wealthier citizens tend to support higher spending in social policies directed at the unemployed, while preferring lower spending in policies aimed at the employed. This paper reveals that these findings hinge on two key assumptions: that citizens have a coefficient of relative risk aversion (CRRA) greater than one, and that all citizens face an equal probability of job loss—a presumption which is not necessarily realistic. By incorporating the observation that job security tends to correlate positively with income, we demonstrate that affluent individuals may still advocate for reduced spending in unemployment policies, even when their CRRA exceeds one. Moreover, a significant shift in the distribution of job security—such as during an abrupt economic crisis—might engender greater societal support for these policies, contrary to their previous research. Finally, empirical data from recent Brazilian history provide analytical support for the theoretical assertions presented herein.
Wealth provides self-insurance against financial risk, reducing risk aversion. We apply this insurance mechanism to electoral behaviour, arguing that a voter who desires a change to the status quo and who is wealthy is more likely to vote for change than a voter who lacks the same self-insurance. We apply this argument to the case of Brexit in the UK, which has been widely characterized as a vote by the ‘economically left-behind’. Our results show that individuals who lacked wealth are less likely to support leaving the EU, explaining why so many Brexit voters were wealthy, in terms of their property wealth. We corroborate our theory using two panel surveys, accounting for unobserved individual-level heterogeneity, and by using a survey experiment. The findings have implications for the potential broader role of wealth-as-insurance in electoral behaviour and for understanding the Brexit case.
This study analyzed how attitudes toward welfare vary or align in Korean society based on the distribution of income and assets. It aimed to identify coalition structures based on income and asset combinations surrounding the current welfare system. The analysis revealed that regardless of income level, groups that have not accumulated sufficient assets are more likely to have positive attitudes when it comes to advocating the expansion of public welfare spending. However, with regard to redistributive policies aimed at addressing social vulnerability, it is evident that there is currently no group capable of forming a coalition with the low-income, low-asset group. Therefore, it can be predicted that in the process of reforming the social security system, an approach of universal welfare policies, providing benefits to the majority of citizens, coupled with additional benefits proportional to the taxes paid, may receive high levels of support.
This Conclusion brings together the main strands of the argumentation in the book. It revisits its main findings and discusses their contribution to advancing a general theory of welfare institutions. It concludes by speculating on the implications of the analysis in the book for policy.
Conflict research has recently found that increased inequality weakens institutional conditions, opening the door for terrorism. While this research often accounts for endogeneity, or the possibility of a reverse causal relationship, there has yet to be an empirical investigation of the impact of terrorism on income inequality. Using a sample of 139 countries between 1994 and 2018, we show that both domestic and transnational terrorism result in higher levels of income inequality. Our results are consistent for both pre- and post-tax and transfer inequality as well as multiple model specifications. Additionally, we explore multiple potential causal mechanisms that link terrorism and income inequality finding that the effect is, in part, due to terrorism’s negative effects on institutional stability, increased military expenditure, possibly to fund counterterrorism operations, and reduced foreign capital, especially for greenfield investment. Our analysis indicates a positive relationship between terrorism and inequality and the mechanisms that produce the effect, contributing to the terrorism and inequality literatures.
À l’aide du baromètre d’opinion de la Drees, nous étudions la soutenabilité politique du financement de la protection sociale en France depuis vingt ans. Les assurances sociales, de par leur caractère contributif, génèrent leur propre soutien politique. Nous cherchons à comprendre comment les différentes dimensions de la contributivité (recettes affectées, éligibilité par affiliation, calcul des droits) sont susceptibles de rendre acceptables les prélèvements sociaux. Notre analyse sur longue période montre que les assurances-maladie et retraite, dont le financement est affecté et la couverture quasi universelle, sont celles qui sont les plus fortement soutenues en France. Au niveau individuel, le soutien au financement d’une prestation est d’autant plus fort qu’on est concerné (directement ou indirectement) par le risque couvert et qu’on y est éligible. Dans un contexte général pourtant marqué par la défiance vis-à-vis de l’impôt, nous n’observons pas de signe d’une « révolte du cotisant » : au contraire, l’opposition à la baisse conjointe des prélèvements et des prestations est de plus en plus large. De plus, les épisodes de hausse des cotisations identifiés lors des vingt dernières années ne provoquent pas de changement d’opinion chez les assurés, tant que ces hausses sont graduelles et concernent des prestations auxquelles ils sont éligibles. Il semble donc qu’il existe un espace politique pour augmenter les ressources dédiées à la protection sociale en France.
Technological change often increases demand for high-skilled jobs, with low-skilled losers turning to the populist right in response. The political effects of technological change that increases demand for low-skilled workers are largely unknown. The growth of the salmon fish-farming industry in rural Norway improved the labor-market situation for low-skilled workers, and we find that support for the populist right-wing party increased in municipalities that benefitted from the industry growth. The electoral change is due to a right-wing shift on the economic, but not the cultural dimension. Our results support political economy frameworks that point to lower demand for state interventions after positive labor market shocks, but raise the question of in what contexts support for populism will decline.
Purpose: Sustainability and ESG criteria are gaining more and more relevance, and the insurance industry is playing a relevant role in the sustainability transition. Therefore, this study aims to review existing academic literature on ESG criteria in the insurance industry. Specifically, it addresses the determinants in three objectives: First, analysing the focus on sustainability considering the three dimensions of the ESG framework: environment, social and governance; the second one, focusing on the relevant topics in the insurance industry involving the ESG criteria. And finally, identifying the main gaps and point out new research lines.Design/methodology: The research was conducted through a systematic literature review considering published articles of Web of Science and Scopus.Originality/value: Although the insurance industry has a very relevant weight into the economy and the society, and it plays a key role in promoting the transition to a low-carbon economy, we noticed that there are not many scientific articles on this subject.Findings: Findings contribute to the body of literature on sustainable finance, providing a new and complete overview about how ESG criteria implementation has been approached in the insurance industry: mapping research streams, analysing the ESG approach, and identifying research gaps in this domain.Practical implications: This article wants to provide a broader and a more structured knowledge about ESG criteria implementation, and to help managers and insurance companies to move forward with sustainability strategies, and to identify the future lines of research.Social Implications: Business sustainability aims to combine market logic with social welfare logic, but we have found little activity on how insurance companies develop the social dimension within the ESG perspective, as a way to influence the community by promoting equal practices, access to education, etc.
How do increasing economic risk cleavages amongst natives shape growing negativity towards immigration? Group conflict theory suggests that tension between immigrant and native groups arises as a reaction to the actual or perceived loss of economic privilege by the majority group members. Yet, such an economically rooted formation of sentiments towards immigration is widely debated. This article aims to clarify and more precisely assess the economic threat mechanisms of inter-group conflict, remedying limitations in earlier work. Distinct from the economic threat effects due to immigration, here, I argue and show that being in a relatively worse-off position amongst natives is a separate channel increasing adverse reactions to immigration. To examine this relationship, I use high-quality longitudinal household panel data Socio-Economic Panel from Germany from 1999 to 2016. Results from the German case provide evidence suggesting that even when controlling for exposure to a higher risk of being substituted by immigrants and a higher risk of being fiscally burdened by foreigners, there is a robust effect of exposure to increasingly higher unemployment risks compared to other native workers in the host society raises adversity towards immigration. This effect is independent of geographic differences and actual exposure to the economic impact of immigrants. Overall, this article reconciles existing accounts of economically motivated group conflict. It brings forward a comprehensive theoretical framework and empirical evidence to the study of worsening reactions towards immigration in these past decades.
Many workers are experiencing the downsides of being exposed to an overload of information and communication technology (ICT), highlighting the need for resources to cope with the resulting technostress. This article offers a novel cross-level perspective on technostress by examining how the context of the welfare state influences the relationship between income and technostress. Showing that individuals with higher income experience less technostress, this study argues that the welfare state represents an additional coping resource, in particular in the form of unemployment benefits. Since unemployment benefits insure income earners in the case of job loss, the negative effect of income on technostress should increase with higher levels of unemployment generosity. In line with these expectations, empirical results based on original survey data collected in collaboration with the OECD show that the impact of income on technostress varies across welfare state contexts. Implications for public health and policymakers are being discussed.
While existing scholarship predominantly focuses on the evolution of welfare regimes in advanced Western economies, there has been limited investigation into the trajectories of such systems in the Asia-Pacific region. This study presents a nuanced analysis of welfare regimes in 20 Asian countries, examining their transformation since the 2000s through principle component analysis and clustering algorithms. Contrary to the predictions of comparative political economy and international political economy theories, the findings reveal that these nations neither exhibit a strict divergence in welfare patterns nor converge strictly towards market-driven commodification. Instead, they adopt a balanced approach, harmonizing elements of both commodification and decommodification. This flexibility allows them to navigate complex challenges, including productivity competition, external shocks, and internal inequality. The study suggests that this balanced approach may act as a positive feedback mechanism, enabling these countries to adapt to both global economic pressures and domestic social imperatives.
Does the threat of automation of workers’ employment provoke distinct policy preferences from that of globalization? We present hypotheses about how these different threats affect support for policies to prevent such shocks as well as policies to compensate via redistribution. Using vignettes and conjoint experiments embedded in survey evidence from Spain, we find that the threat of automation does not provoke any greater demand for redistribution than does openness. Nor does job loss due to automation provoke beliefs of greater deservingness of compensatory transfers, compared to job loss from openness. While the threat of offshoring and hiring foreign workers increases support for policies to prevent this process from occurring, scenarios of robot substitution do not provoke a similar reaction. These results suggest policies to prioritize automation over openness may gain less political traction.
This study introduces a bounded rationality approach to welfare preference formation under exposure to labor market risks. It argues that risk exposure only increases welfare demand when it is reasonable to assume that workers are aware of their risk exposure and when future-related concerns are currently salient. Empirical analyses of longitudinal data from Switzerland and 28 European countries support the theory. Swiss workers only optimize their welfare preferences in a forward-looking manner when they become unemployed, and only the national unemployment rate is found to increase welfare demand in European countries. In contrast, a variety of risks on the occupational and individual level drawn from previous research are found to be unrelated with welfare preferences. The implication is that the risk exposure of employed workers may matter less for their welfare preferences and downstream political phenomena such as voting behavior than commonly expected.
Social insurance motivations consider the welfare of others who are in potentially unfavorable situations. However, their role in increasing support for redistribution is not yet fully understood. The experiment reported here examined distributional decisions in which participants determined income distribution without being informed to which income class they would belong. This was contrasted with decisions made in lottery situations. Lottery decisions had the same risk for oneself, but they lacked a social context, namely the influence on the incomes of others. Less risky (more equal) decisions were observed in distributional decisions than in lottery decisions. Further, the selection of equality in distributional decisions (but not the risk aversion observed in lottery decisions) was positively correlated with support for welfare policies, which had been measured by a pre-experiment survey. This study observed the critical role of social context, which promotes the consideration of the welfare of others in fostering support for redistribution.
A strand of the political economy literature emphasizes the effect of income inequality on growth and poverty, which materialises through redistribution. The theoretical expectation postulated by standard economic theory is that high inequality would lead to higher redistribution via the collective action of the median voter. The empirical literature testing the median voter theorem has been conducted in the context of industrialised economies. In this article, we examine the median voter hypothesis with specific reference to SSA, a region characterised by high levels of income inequality and limited redistribution. We adopt an instrumental variable approach to unpack the determinants and plausible mechanisms underpinning this relationship. In the article, we account for the effect of omitted top income earners in income inequality estimates, given their weight in the shape of the income distribution and their influence in redistributive policies. Overall, we find a positive relationship between inequality and redistribution in SSA, especially among middle-income countries. Further examination reveals that the abundance of natural resource rents seems to be the driving force affecting tax policy choices, which in turn exacerbates income inequality and undermines progressive redistribution. Thus, in assessing the relationship between inequality and redistribution, our results do not provide strong evidence to support the propositions of the median voter theorem, but instead, they call for alternative interpretations that seem to align more closely to the existence of multiple steady states.
Wealth is often more unequally distributed than income, and there are considerable differences across countries. In this paper, we argue that wealth inequality helps explain cross-national variation in support for (and the size of) the welfare state because assets serve as private insurance. When wealth, particularly liquid assets, is unequally distributed across the income spectrum and high-income groups hold most assets, strong reinforcing preferences in favor of or against social policies result in antagonistic welfare politics and less government spending. When assets are more equitably distributed across the income spectrum, cross-cutting preferences emerge as more people support either insurance or redistribution. Welfare politics is consensual and facilitates a broader welfare coalition and more government spending. We analyze original cross-national survey data from nine OECD countries and provide evidence in support of our argument. Our findings suggest that wealth inequality reshapes the role of income in structuring welfare politics.
This paper addresses long-standing debates over the role of demographic structure, class power, class-based political parties, and democraphic political participation in the growth of the welfare state in advance industrial democracies from 1950 to 1980. It distinguishes four theories-industrialism, monopoly capitalism, social democratic, and interest-group politics-and tests them using pooled, cross-sectional, time-series data for 18 nations and seven time points. Total social welfare spending, composed primarily of social insurance benefits, is dominated by the size of the aged population, smaller but important effect of nonclass political variables such as voting participation and electoral competition, and interaction of age with political and other variables. Public assistance, means-tested programs, however, are dominated by class variables. Although evaluation of the theories must consider the domain of programs to which each best applies, the results generally favor an interest-group-politics theo...
The literature on the determinants of welfare state effort displays many inconsistencies and contradictions. This article takes important steps toward resolving these issues with the use of pooled cross-sectional and time-series analyses. The findings are that various independent variables affect different measures of welfare state effort in different and theoretically meaningful ways. Of special importance are the contrasting effects of Christian democracy and social democracy on transfer payments, social benefits expenditure, and total government revenue. There is also a strong effect of constitutional structure on welfare state effort, a finding that provides the first solid support for the state-centered perspective in a quantitative analysis.
We examine some issues in the estimation of time-series cross-section models, calling into question the conclusions of many published studies, particularly in the field of comparative political economy. We show that the generalized least squares approach of Parks produces standard errors that lead to extreme overconfidence, often underestimating variability by 50% or more. We also provide an alternative estimator of the standard errors that is correct when the error structures show complications found in this type of model. Monte Carlo analysis shows that these “panel-corrected standard errors” perform well. The utility of our approach is demonstrated via a reanalysis of one “social democratic corporatist” model.
We present a theory of social policy preferences that emphasizes the composition of peopleÕs skills. The key to our argument is that individuals who have made risky investments in skills will demand insurance against the possible future loss of income from those investments. Because the transferability of skills is inversely related to their specificity, workers with specific skills face a potentially long spell of unemployment or a significant decline in income in the event of job loss. Workers deriving most of their income from specific skills therefore have strong incentives to support social policies that protect them against such uncertainty. This is not the case for general skills workers, for whom the costs of social protection weigh more prominently. We test the theory on public opinion data for eleven advanced democracies and suggest how differences in educational systems can help explain cross-national differences in the level of social protection.
Welfare benefits in the U.S. have experienced a much-studied secular decline since the mid-1970s. We explore a new hypothesis for this decline related to the increase in wage inequality in the labor market and the decline of real wages at the bottom of the distribution: we posit that voters prefer benefits which are tied to low-skilled wages. We test the hypothesis using a 1969–1992 panel of state-level data. An additional contribution of our analysis is the use of General Social Survey data on voter preferences for welfare which we combine with Current Population Survey data to determine the voter in each state who has the median preferred welfare benefit level. Our analysis reveals considerable evidence in support of a role for declining real wages in the decline of welfare benefits.
In a general equilibrium model of a labor economy, the size of government, measured by the share of income redistributed, is determined by majority rule. Voters rationally anticipate the disincentive effects of taxation on the labor-leisure choices of their fellow citizens and take the effect into account when voting. The share of earned income redistributed depends on the voting rule and on the distribution of productivity in the economy. Under majority rule, the equilibrium tax share balances the budget and pays for the voters' choices. The principal reasons for increased size of government implied by the model are extensions of the franchise that change the position of the decisive voter in the income distribution and changes in relative productivity. An increase in mean income relative to the income of the decisive voter increases the size of government.
Time and value are related concepts that influence human behaviour. Although classical topics in human thinking throughout the ages, few environmental economic non-market valuation studies have attempted to link the two concepts. Economists have estimated non-market environmental values in monetary terms for over 30 years. This history of valuation provides an opportunity to compare value estimates and how valuation techniques have changed over time. This research aims to compare value estimates of benefits of a protected natural area. In 1978, Nadgee Nature Reserve on the far south coast of New South Wales was the focus of the first application of the contingent valuation method in Australia. This research aims to replicate that study using both the original 1978 contingent valuation method questionnaire and sampling technique, as well as state of the art non-market valuation tools. This replication will provide insights into the extent and direction of changes in environmental values over time. It will also highlight the impact on value estimates of methodological evolution. These insights will help make allocating resources more efficient.
One of the most widely used methods of targeting is to reduce welfare benefits as income rises. Although the need for such targeting is clear enough, it also entails two important difficulties. Firstly, the prospect for the recipients of losing part of their benefits if they were to earn more can be a deterrent to work harder. Secondly, by reducing the number of recipients, targeting reduces the political support for taxation and redistribution. The purpose of this paper is to study the voting equilibrium of the degree of targeting and the level of taxation in an economy where labor supply is variable. The analysis reveals that targeting may be fatal for redistribution even though it rejects strictly less than the richest half of the population, and that it is not possible for a coalition of the extremes to form and reject the middle income group from the welfare system. Moreover, because targeting affects labor supply, the authors find that Pareto improvements are possible when targeting is either 'too low' or 'too high.' They also find that voting simultaneously over taxation and targeting is favorable to the poor in the sense that they can converge to their most-preferred policy by successively forming a majority coalition with the rich to increase targeting and with the middle to increase taxation. Copyright 1998 by Kluwer Academic Publishers
The welfare state can be seen as an insurance device that makes lifetime careers safer, increases risk taking and suffers from moral hazard effects. Adopting this view, the paper studies the trade-off between average income and inequality, evaluating redistributive equilibria from an allocative point of view. It examines the problem of optimal redistributive taxation with tax-induced risk taking and shows that constant returns to risk taking are likely to imply a paradox where more redistribution results in more post-tax inequality. In general, optimal taxation will imply either that the redistribution paradox is present or that the economy operates at a point of its efficiency frontier where more inequality implies a lower average income. Copyright 1995 by The editors of the Scandinavian Journal of Economics.
Why do both left and right political parties typically propose progressive income taxation schemes in political competition? Analysis of this problem has been hindered by the two-dimensionality space of admissible tax policies: Nash equilibria in pure strategies of the usual political game generically fail to exist. A new equilibrium concept, based on the fact of factional conflict within parties, is introduced. Each party has incomplete preference orders on the strategy space, formed as the intersection of the complete preference orders of its factions. Nash equilibria of the two-party game, so construed, do exist and, in such equilibria, both parties propose progressive income taxation.
This paper develops a theory of inequality and the social contract aiming to explain how countries with similar economic and political "fundamentals" can sustain such different systems of social insurance, fiscal redistribution, and education finance as those, of the United States and Western Europe. With imperfect credit and insurance markets some redistributive policies can improve ex ante welfare, and this implies that their political support tends to decrease with inequality. Conversely, with credit constraints, lower redistribution translates into more persistent inequality; hence the potential for multiple steady states, with mutually reinforcing high inequality and low redistribution, or vice versa.
'I propose here the view that, when the market fails to achieve an optimal state, society will, to some extent at least, recognize the gap, and nonmarket social institutions will arise attempting to bridge it....' (Kenneth Arrow 1963, p. 947). 'Economic theorists traditionally banish discussions of information to footnotes. Serious consideration of costs of communication, imperfect knowledge ... would, it is believed, complicate without informing.... [T]his comforting myth is false. Some of the most important conclusions of economic theory are not robust to considerations of imperfect information' (Michael Rothschild and Joseph Stiglitz 1976, p. 629). 'That any sane nation, having observed that you could provide for the supply of bread by giving bakers a pecuniary interest in baking for you, should go on to give a surgeon a pecuniary interest in cutting off your leg, is enough to make one despair of political humanity' (George Bernard Shaw, The Doctor's Dilemma, 1911).
The Swedish record of enormous compression of relative wages under centralized “solidarity” bargaining, followed by substantial decompression of wages after central bargaining broke down, supplies observations well suited to empirical evaluation of arguments about the response of productive efficiency to shifts in wage distribution. We obtain no results supporting “fairness, morale, and cohesiveness” theories implying that wage leveling within workplaces and industries may enhance productivity. Reduction of interindustry wage differentials evidently did, however, contribute positively to aggregate output and productivity growth, most likely for the structural reasons first emphasized by Swedish trade union economists almost a half century ago.
I explore empirically a central claim of the structural dependence thesis, namely, that capitalists' ability to disinvest fundamentally conditions policy choices in democratic capitalist systems. Utilizing time-series data for 16 affluent democracies from 1965 to 1984, I find that, indeed, low rates of business investment are associated with reductions in corporate tax burdens and that these reductions are more pronounced in periods of economic crisis. Moreover, low rates of capital formation engender cuts in personal income taxes during periods of economic stress. However, I also find that the magnitude of responsiveness of taxation to low rates of investment is relatively small and that analyses of the political context of investment and taxation indicate that governments have choices. The responsiveness of corporate tax burdens to capital formation may, under some governments, be part of a policy mix designed to maintain adequate investment and to address the demands of core constituencies.
The distribution of pay differs significantly across countries and over time among advanced industrial societies. In this paper, institutional and political determinants of pay inequality an studied in sixteen countries from 1980 to 1992. The most important factor in explaining pay dispersion is the level of wage-setting, i.e., whether wages are set at the level of the individual, the plant, the industry, or the entire private sector. The impact of centralization is the same whether centralization occurs via collective bargaining or via government involvement in private-sector wage-setting. The concentration of unions and the share of the labor force covered by collective bargaining agreements also matter. After controlling for wage-setting institutions, other variables such as the governing coalition, the size of government, international openness, and the supply of highly educated workers have little impact. Economic, political, and norm-based explanations for the association of centralization with egalitarian outcomes are discussed.
We examine the roles of democratic politics and political institutions in shaping social welfare spending in 18 contemporary capitalist democracies. We explore the social spending consequences of government partisanship, electoral competition and turnout, and the self-interested behaviors of politicians and bureaucrats, as well as such relatively durable facets of political institutions as neocorporatism, state centralization, and traditionalist policy legacies. Pooled time series analyses of welfare effort in 18 nations during the 1960–82 period show that electoral turnout, as well as left and center governments increase welfare effort; that the welfare efforts of governments led by particular types of parties show significant differences and vary notably with the strength of oppositional (and junior coalitional) parties; and that relatively neocorporatist, centralized, and traditionalistic polities are high on welfare effort. Overall, our findings suggest that contrary to many claims, both partisan and nonpartisan facets of democratic politics and political institutions shape contemporary social welfare effort.
Nearly thirty years of research on social choice has produced a large body of theoretical results. The underlying structure of the models that have generated these results is highly atomistic and institutionally sparse. While attention has been devoted to the mechanisms by which individual revealed preferences are aggregated into a social choice, rarely are other aspects of institutional arrangements treated endogenously. In this paper institutional properties are given more prominence. In particular, I focus on three aspects of organization: (1) a division-of-labor arrangement called a committee system: (2) a specialization-of-labor system called a jurisdictional arrangement; and (3) a monitoring mechanism by which a parent organization constrains the autonomy of its subunits called an amendment control rule. The conceptual language has a legislative flavor but, in fact, the concepts are broadly applicable to diverse organizational forms. The principal thrust of this paper is a demonstration of the ways institutional arrangements may conspire with the preferences of individuals to produce structure-induced equilibrium.
The terms `left' and `right' are widely used to organize party competition and to shape connections between citizens and political parties. Recent and dramatic changes in the world, however, raise important questions about the meaning and importance of left-right ideology. Most notably, the collapse of communism has led to the development of a host of new democracies. And in advanced industrial societies, conflict has emerged over issues like the environment and immigration. This paper draws on a survey of political experts in 42 societies to address three questions raised by these changes. First, is the language of left and right still widely used, even in recently democratized countries? Second, do there exist secondary dimensions of political conflict that are orthogonal to the left-right dimension? Third, and most importantly, what substantive issues define the meaning of left-right ideology? In addition to addressing these questions, we present data on the left-right locations of political parties in each of the 42 countries.
Is the political support for welfare policy higher or lower in less egalitarian societies? We answer the question using a model of welfare policy as publicly financed insurance that pays benefits in a redistributive manner. When voters have both redistributive and insurance motives for supporting welfare spending, the effect of inequality depends on how benefits are targeted. Greater inequality increases support for welfare expenditures when benefits are targeted to the employed but decreases support when benefits are targeted to those without earnings. With endogenous targeting, support for benefits to those without earnings declines as inequality increases, whereas support for aggregate spending is a V-shaped function of inequality. Statistical analysis of welfare expenditures in advanced industrial societies provides support for key empirical implications of the model.
Low voter turnout is a serious democratic problem for five reasons: (1) It means unequal turnout that is systematically biased against less well-to-do citizens. (2) Unequal turnout spells unequal political influence. (3) U.S. voter turnout is especially low, but, measured as percent of voting-age population, it is also relatively low in most other countries. (4) Turnout in midterm, regional, local, and supranational elections--less salient but by no means unimportant elections--tends to be especially poor. (5) Turnout appears to be declining everywhere. The problem of inequality can be solved by institutional mechanisms that maximize turnout. One option is the combination of voter-friendly registration rules, proportional representation, infrequent elections, weekend voting, and holding less salient elections concurrently with the most important national elections. The other option, which can maximize turnout by itself, is compulsory voting. Its advantages far outweigh the normative and practical objections to it.
In LDCs, policymakers sometimes cannot observe income among the poor. One oft-proposed approach to redistribution is indicator targeting: targeting transfers on corrrelations between income and “indicators” like geography, gender, or occupation. We build a simple model in which maximizing poverty reduction from a fixed budget requires indicator targeting. Because insurance motives drive political support for redistribution, the budget depends on the degree of targeting. When middle income agents receive targeted transfers sufficiently rarely, introducing targeting reduces poor agents' welfare. The converse holds when middle income agents receive targeted transfers sufficiently rarely, i.e. if the redis-tributive bucket is sufficiently leaky.
This paper presents a model of competition among special interest groups for political influence. Each active group exerts pressure to affect its taxes and subsidies, where activities of different groups are related by the equality between total tax collections and total tax subsidies. The dead weight costs and benefits of taxes and subsidies play a major role in our model. An increase in the dead weight cost of taxation encourages pressure by taxpayers, while an increase in the dead weight costs of subsidies discourages pressure by recipients. Various applications of the analysis are discussed.
This paper develops a simple model to study the effects of growth on economic policy, and, in particular, on redistributive taxation. I do not explain economic growth; I assume it is exogenous, and ask how changes in the growth rate (and in several other variables) affect the outcome of a political process that determines taxes and transfers. It is shown that faster-growing economies will choose more or less redistribution, depending on risk aversion. In the empirically relevant case, the model predicts lower taxes in faster-growing economies.
The simple pressure group model of political redistribution can predict more with less restrictive assumptions. Instead of ready-made pressure groups composed of individuals who vote their pocketbooks, we posit heterogeneous agents each of whom decides which group to join and how much effort to expend on political activity. Our model then examines ‘social affinity’ conditions that foster pressure group formation. Political sympathies based on social affinity imply testable effects of growth rate and income distribution on progressive transfers, effects that prove substantial in pooled time-series cross-section regressions for 13 OECD countries, 1960–1981.
We consider a political economy with two partisan parties; each party represents a given constituency of voters. If one party (Labour) represents poor voters and the other (Christian Democrats) rich voters, if a redistributive tax policy is the only issue, and if there are no incentive considerations, then in equilibrium the party representing the poor will propose a tax rate of unity. If, however, there are two issues – tax policy and religion, for instance – then this is not generally the case. The analysis shows that, if a simple condition on the distribution of voter preferences holds, then, as the salience of the non-economic issue increases, the tax rate proposed by Labour in equilibrium will fall – possibly even to zero – even though a majority of the population may have an ideal tax rate of unity.
A fundamental problem in public finance is the determination of parameters of income tax functions. This paper focuses on this problem in the context of a linear tax function whose parameters are chosen according to majority vote by the taxpayers. The possibility of conflict between high national income and distributional equity is explored and it is found that, even when the distribution of earning power is rightward skew, majority voting does not necessarily lead to the adoption of a tax function which has the average tax rate rising with income.
In many voting situations, preferences over options may fail to be single-peaked. This is especially true when options consist of different amounts of a good which is provided through distortionary taxation. In this paper, voting over linear income tax schedules is considered. Although preferences may fail to be single-peaked, a choice set is shown to exist when only mild restrictions are imposed. For many choices in the public domain, the conditions required for this result are likely to be satisfied.
Thesis (Ph. D.)--Harvard University, 1998. Includes bibliographical references. Photocopy.
Although majoritarian decision rules are the norm in legislatures, relatively few democracies use simple majority rule at the electoral stage, adopting instead some form of multiparty proportional representation. Moreover, aggregate data suggest that average income tax rates are higher, and distributions of posttax income flatter, in countries with proportional representation than in those with majority rule. While there are other differences between these countries, this paper explores how variations in the political system per se influence equilibrium redistributive tax rates and income distributions. A three-party proportional representation model is developed in which taxes are determined through legislative bargaining among successful electoral parties, and the economic decision for individuals is occupational choice. Political-economic equilibria for this model and for a two-party, winner-take-all, majoritarian system are derived and compared.
This paper presents a theory of competition among pressure groups for political influence. Political equilibrium depends on
the efficiency of each group in producing pressure, the effect of additional pressure on their influence, the number of persons
in different groups, and the deadweight cost of taxes and subsidies. An increase in deadweight costs discourages pressure
by subsidized groups and encourages pressure by taxpayers. This analysis unifies the view that governments correct market
failures with the view that they favor the politically powerful: both are produced by the competition for political favors.
Just like economists, voters have conflicting views about redistributive taxation because they estimate its incentive costs differently. We model rational agents as trying to learn from their dynastic income mobility experience the relative importance of effort and predetermined factors in the generation of income inequality and therefore the magnitude of these incentive costs. In the long run 'left-wing dynasties' believing less in individual effort and voting for more redistribution coexist with 'right-wing dynasties.' This allows us to explain why individual mobility experience and not only current income matters for political attitudes and how persistent differences in perceptions about social mobility can generate persistent differences in redistribution across countries. Copyright 1995, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
We study the relationship between politics and economic growth in a simple model of endogenous growth with distributive conflict
among agents endowed with varying capital/labor shares. We establish several results regarding the factor ownership of the
median individual and the level of taxation, redistribution, and growth. Policies that maximize growth are optimal only for
a government that cares solely about pure “capitalists.” The greater the inequality of wealth and income, the higher the rate
of taxation, and the lower growth. We present empirical results that show that inequality in land and income ownership is
negatively correlated with subsequent economic growth.
This paper investigates the political support for social assistance policies in a model in which incomes are stochastic (so that welfare policies have an insurance benefit) and unequal ex ante (so that welfare policies have a redistributive effect). With self-interested voting, narrow targeting may so reduce the probability of receiving benefits for the majority that the majority prefers to eliminate benefits altogether, even though the cost of narrowly targeted benefits is close to zero. In contrast, a majority of self-interested voters always supports positive welfare benefits when the policy is targeted sufficiently broadly. If voters are somewhat altruistic, the impact of targeting on political support for welfare spending diminishes but does not disappear. Copyright Springer-Verlag Berlin Heidelberg 2001
This paper studies the impact of income inequality on fiscal conservatism when an increase in inequality essentially affects the bottom of the income distribution. It is argued that, contrary to what is generally assumed in the economic literature, inequality will then be associated will less, rather than more, redistributive taxation. Furthermore, if the poor are liquidity constrained then the positive association between inequality and fiscal conservatism will increase the persistence in the dynamics of income distribution and possibly lead to multiple steady states. (Copyright: Elsevier)
This paper examines how the issue of political support affects the design of social insurance. It distinguishes between redistributive character and size of social protection. Three main results emerge. First, it may be appropriate to adopt a system which is less redistributive than otherwise optimal, in order to ensure political support for an adequate level of coverage in the second (voting) stage. Second, supplementary private insurance may increase the welfare of the poor, even if it is effectively bought only by the rich. Third, the case for prohibiting (supplementary) private insurance may become stronger when the efficiency of private insurance markets increases.
This chapter discusses some extensions on the demand for risky assets. The research on capital asset pricing has until very recently been devoted almost exclusively to the interrelationships of the risk premiums among different risky assets rather than to the determinants of the market price of risk. Such research has also generally relied on theoretical preconceptions to determine the appropriate utility functions of individual investors upon which both the market price of risk and the pricing of individual risky assets depend. The chapter discusses the highlights of the theoretical and empirical analysis and their conclusions. Then, the same analytical framework is used to obtain new results on the effect of inflation on the market price of risk. It turns out that by using nominal values for returns, the market price of risk under inflation is increased by positive covariance between the rate of inflation and the market rate of return, and decreased by negative covariance. However, statistically as the actual covariance has been very small since the latter part of the 19th century, at least in the USA, the measured market price of risk is not affected appreciably by the adjustment for inflation.
: In the postwar era until recently, transfer payments have risen seemingly inexorably as a fraction of GDP in every developed democracy. A considerable body of positive theory purports to explain this development as a direct consequence of the differential distributions of political (votes) and economic (money) resources. This literature concludes, inter alia, that the size of tax-andtransfer systems (T&T) increases in the pre-T&T skew of the income distribution. This paper builds from that basis, suggesting theoretical additions and amendments deriving from further consideration of the political processes that transform resources into influence. It particularly emphasizes that not everyone participates politically and that participants and non-participants are not randomly selected. Together these facts imply that the response of T&T to changes in income inequality will be mediated by participation rates and, vice versa, the response to increases in participation will be mediated by ...
Rising Inequality and Declining Support for Redistribution
- Wallerstein Moene Karl Ove
- Michael
Voting for Inequality
- Devroye Dan