Equalizing Incomes Over Time: Why the Institutional Arrangement of the Welfare State Matters for Redistribution Preferences

Abstract

Why do the rich support more income redistribution in some countries than in others? This article takes into account that the way in which the welfare state organizes life-cycle redistribution has an impact on rich-to-poor redistribution in the future. I differentiate between earnings-related and flat-rate systems. Flat-rate systems equalize a given income distribution over time, while earnings-related systems maintain it. I argue that individuals take this income-equalizing effect of the welfare state into account when forming redistribution preferences. The hypothesis is that support for redistribution is higher in systems that maintain income differences over time than in income-equalizing systems. I combine observational and experimental approaches for empirical evidence. Observational regularities substantiate the hypothesis that average support for redistribution is lower in income-equalizing systems. Modified dictator games with manipulations of institutional characteristics reveal that participants are less concerned about endowment inequality if endowment differences are equalized in expectation.

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