Let's Talk about the Welfare State: Preferences, Fairness, and Institutions of the Welfare State

Income inequality is on the rise. In OECD countries, the richest 10% of the population earn almost 10 times the incomes of the poorest 10% (OECD 2015). The ever-widening gap between the haves and the have-nots raises numerous societal, political, and economic concerns. Ineuqality had been linked to rising crime rates, social trust and political participation, the rise of the radical right, and intergenerational mobility. Welfare states play a key role in the redistribution of incomes. The politics of inequality and redistribution, however, is a long contested topic in actual policy making and most political economists agree that the rich (the politically powerful group) oppose the redistirbution of incomes unless it comes at their own benefit.

Growing research contests this basic assumption and provides mounting evidence that other-regarding preferences are an important motive and support for redistribution is not solely explainable by materialisitc concerns and selfish preferences. The rich, the politically most powerful group and arguably the one that is least in support for redistribution does appear to be concerned about the poor. The question I ask in this book is why the rich, against their immediate self-interest, support income redistribution. My approach reassesses the link between institutions and preferences and introduces fairness considerations as an important mediating factor.

Welfare states differ in the logic they apply when distributing social benefits. The Beveridgean welfare system emphasizes social solidarity where everyone in need should receive basic provisions. Welfare states which follow the Bismarckian tradition, in contrast, provide more to those who contribute more to the system. These system-based differences in the arrangement of social welfare have two implications. First they affect the stability of a given income distribution over time and therefore opens door for an intertemporal argument of why the rich support redistribution at any given point in time. I am going to argue that the rich are more in support for redistribution if they can be sure that their own incomes are maintained over time. Second, institutional differences have directly respond to fairness in the distribution of incomes. Do people differ in which system they consider more fair? What are the factors influencing their choice?

I relate these differences in the institutional arrangement of welfare states to questions of distributive justice. The argument I make is that the other-regarding rich respond to fairness considerations associated with the institutional arrangement of the welfare state when forming preferences for redistribution. In the first part of the book, I empirically evaluate whether preferences for redistribution depend on the institutional arrangement one lives in. With a combination of observational and experimental data, I show that people respond to these systematic differences, and that most people support higher levels of redistribution in systems which maintain given income differences over time. The mechanism I propose for this link requires that people understand the mechanics of the welfare state they live in. Part II evaluates empirically whether people are aware of the implications of the welfare state they live in. I use online surveys to corroborate central behavioral assumptions. Finally in Part III, I assess whether people differ in their perspectives of which system they deem more fair. I further examine how differences in the source of individual incomes (luck or merit) influence individual choices, and the extent to which fairness considerations interact with material self-interest. My book project builds on the central findings and key arguments of my dissertation thesis. The methods I am drawing on include quantitative analyses based on observational data as well as online and laboratory experiments.

The book project has important implications for the importance of the institutional arrangement in preference formation and support for redistribution. The findings I am building on show that there is a substantial part of the population that generally does care about the well-being of the less well-off. The extent to which this segment of the population supports income redistribution however depends on future dynamics and considerations of fairness. The link between institutions and preferences has crucial implications for the question of how much leeway welfare states have to intervene in the current trends of rising inequality without losing support by those who finance the system: the rich.

Verena Fetscher
Postdoctoral Researcher

My research interests include redistribution preferences, fariness concerns, and experimental methods