Equalizing Incomes over Time: Why Structural Differences in Social Insurance Matter for Redistribution Preferences

Abstract

Why do the rich support more income redistribution in some Western European welfare states than in others? The article builds on structural differences in the governing principle of social insurance. Flat-rate systems provide social benefits in equal amounts to everyone in need, while earnings-related systems provide benefits in relation to previous earnings. These differences have implications for future income equalization. If individual incomes have a fair (effort) and an unfair (luck) component, and if there is a risk of becoming unemployed in the future, earnings-related systems maintain fair and unfair income differences over time, while flat-rate systems equalize both components in the future. With a combination of observational and experimental data, I show that average support for redistribution among the better-off is higher in earnings-related systems, and that participants in laboratory experiments are less concerned about inequality in endowments if social insurance is governed by the flat- rate principle.

Publication
under review