Demand for Redistribution: Individuals’ Responses to Economic Setbacks

Published date01 January 2019
AuthorLinna Martén
DOIhttp://doi.org/10.1111/sjoe.12276
Date01 January 2019
Scand. J. of Economics 121(1), 225–242, 2019
DOI: 10.1111/sjoe.12276
Demand for Redistribution: Individuals’
Responses to Economic Setbacks*
Linna Mart´en
Immigration Policy Lab, Stanford University, Stanford CA 94305-6044, USA
lmarten@stanford.edu
Abstract
Economic circumstances have been argued to be a major determining factor of attitudes toward
redistribution, but there is little well-established evidence at the individual level.The Swedish
National Election Studies are constructed as a rotating survey panel, which makes it possible to
estimate the causal effect of economic changes. The empirical analysis shows that individuals
who lose their job become considerably more supportive of redistribution.Yet, attitudes toward
redistribution return to their initial level as economic prospects improve, suggesting that the
effect is only temporary.While a job loss also changes attitudes toward the political parties, the
probability of voting for the left-wing is not affected.
Keywords: Income distribution; political attitudes; social insurance; unemployment
JEL classification:D31; D72; H55; J64
I. Introduction
There is little consensus on the political consequences of unemployment.
According to one line of reasoning, voters will demand more generous
welfare policies during periods of economic downturn, which will benefit
left-wing parties (e.g., Wright, 2012). Others argue that right-wing parties
will be rewarded, because voters are fiscally conservative (e.g., Stevenson,
2001). Others emphasize that voters are retrospective and punish the
government, without regard to partisan affiliation (see the overview by
Lewis-Beck and Stegmaier, 2013). The lack of consensus is likely to be
due to methodological difficulties, because political parties also influence
economic outcomes. In contrast, there is not much disagreement about
the fact that individuals’ attitudes toward redistribution are influenced by
Affiliated with Uppsala Center for Labor Studies and Uppsala Center for Fiscal Studies.
*This research was supported by the NORFACE ERA-NET Welfare State Futures Programme
(grant number 462-14-010). I thank three anonymous referees for providing constructive
comments. I am also grateful for suggestions from Matz Dahlberg, Olle Folke, Erik Snowberg,
Helena Holmlund, Mikael Elinder,Katarina Nordblom, Hans Gr ¨onquist, Mikael Persson, Noam
Lupu, and participants at seminars at Uppsala University and the 2013 MPSA conference. Finally,
I thank Noelle Daly for proofreading. Any errors are myown.
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The editors of The Scandinavian Journal of Economics 2017.
226 Demand for redistribution: individuals’responses to economic setbacks
their own financial gains (e.g., Meltzer and Richard, 1981; Alesina and La
Ferrara, 2005), despite the fact that there is little well-established evidence.
Overall, political attitudes have been found to be stable over the lifespan
(e.g., Sears and Funk, 1999), but the empirical evidence is scant and
largely based on small, non-representative samples. Hence, it is unclear
whether changes in individuals’ economic conditions really have an impact
on their attitudes toward redistribution. Using data from Sweden, in this
paper, I examine whether short-term variation in individuals’ economic
circumstances causes them to change their demand for redistribution (in
the form of public benefits and support).
The paper is mainly situated within the body of literature that focuses
on economic circumstances, as opposed to social preferences and beliefs,
as determinants of attitudes toward redistribution.1Several studies based on
cross-sectional survey data find that people’s labor-market position, current
and expected income level, and risk of being laid off are associated with
attitudes toward redistribution (Ravallion and Lokshin, 2000; Alesina and
La Ferrara, 2005; Rainer and Siedler, 2008; Rehm, 2009; Guillaud, 2013).
However, the reliance on cross-sectional survey data is problematic because
unobservable characteristics (e.g., the social background of an individual’s
parents) can account for both an individual’s economic situation and
attitudes toward redistribution. A growing number of studies have instead
examined attitudes toward redistribution in experimental settings, finding
that individuals are influenced by risk aversion and expected financial gains
(e.g., Cruces et al., 2013; Durante et al., 2014), but also by beliefs about
income determinants (Deffains et al., 2016).
In this paper, I focus instead on observational data and I use survey
data to address the issue with unobservable heterogeneity. The most
closely related work is the paper by Margalit (2013), who uses survey
panel data from the United States.2The study finds that individuals who
experience a major economic setback (a job loss or an increase in subjective
job insecurity) become more supportive of welfare spending, whereas
gaining employment has no significant effect. I use survey data from
the Swedish National Election Studies (SNES) to estimate the effect of
1A number of studies focus on social preferences, emphasizing the importance of altruism,
inequality aversion, and beliefs about the determinants of poverty (e.g., Fong, 2001; Galasso,
2003;Alesina and Angeletos, 2006). Systematic differences in the support for redistribution have
also been attributed to culture, social capital, political institutions, and historical experiences(e.g.,
Corneo and Gr¨uner, 2002; Alesina and Fuchs-Sch ¨undeln, 2007;Eugster etal., 2011; Luttmer and
Singhal, 2011; Yamamura, 2012; Kuziemko et al., 2015; Algan et al., 2016). Group identity has
also been found to predict attitudes toward redistribution (e.g., Luttmer, 2001; Keely and Tan,
2008; Klor and Shayo, 2010; Fongand Luttmer, 2011; Dahlberg et al., 2012).
2While Margalit (2013) estimates a lagged dependent variable model, I use a first-difference
specification, to account for unobserved heterogeneity.
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The editors of The Scandinavian Journal of Economics 2017.

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