Inequality, Social Insurance, and Redistribution

TLDR

Voter support for welfare spending depends on inequality and benefit targeting when voters hold both redistributive and insurance motives. The study asks whether political support for welfare policy is higher or lower in less egalitarian societies. The authors model welfare policy as publicly financed insurance that redistributes benefits, and use statistical analysis of welfare expenditures in advanced industrial societies to test the model. Greater inequality raises support for welfare when benefits target the employed but lowers support when targeting the unemployed; with endogenous targeting, support for benefits to the unemployed falls with inequality while aggregate spending support follows a V‑shaped pattern, findings confirmed by the data.

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.