What is the effect of income stagnation on support for the welfare state?
Matching novel data on the evolution of income to existing micro- and macro-level datasets, we argue that stagnation leads to greater support for spending cuts and tax cuts. We develop a simple model linking income stagnation to support for cuts via three distinct mechanisms. Stagnation reduces altruistic motives for welfare state spending, it heightens the relative perceived costs of insurance, and it leads individuals to support tax cuts to compensate for their stagnating incomes. Our micro-level empirical analyses show that individuals facing stagnant or lower incomes support spending cuts and tax cuts to a greater extent. This effect is especially strong among high-income individuals and/or people facing low unemployment risk. At the macro level, these dynamics lead to greater retrenchment in countries with lower income growth. Taken together, our findings link income stagnation to comparative political economy studies of welfare state evolution. They help us make sense of why governments implement (often) economically inefficient spending cuts during economic crises, despite rising risks which should lead to larger welfare states. In contrast to previous literature claiming that the implementation of austerity is the result of democracy being subverted, we show that there are rationally based reasons why some pivotal electoral groups support retrenchment under conditions of economic stagnation.
Dr Tim Vlandas (PhD, ÐÓ°ÉÂÛ̳) is Associate Professor of Comparative Social Policy and a fellow of St Antony’s College at the University of Oxford. He is interested in the relationship between electoral politics, public policies and economic outcomes. His research has been published in Basic Income Studies, Comparative European Politics, Comparative Political Studies, European Journal of Industrial Relation, European Political Science Review, European Political Science, French Politics, Intereconomics, Journal of Common Market Studies, Journal of Ethnic & Migration Studies, Journal of European Social Policy, Journal of International & Comparative Social Policy, Journal of International & Comparative Labour Studies, Nations&Nationalism, Political Science Research & Methods, Politics&Society, Political Quarterly, Social Policy&Administration, Socio-Economic Review, Swiss Political Science review, West European Politics, and Work Employment & Society. He has been awarded prizes by the European Network for Social Policy Analysis and the American Political Science Association.
Dr David Weisstanner is a postdoctoral researcher at the Department of Social Policy and Intervention and an associate member at Nuffield College at the University of Oxford. He is interested in the political determinants and consequences of economic inequality on policy preferences and voting behaviour. His research has been published in journals such as Socio-Economic Review, Journal of European Public Policy, West European Politics, or the Journal of Social Policy.
Dr Raluca L. Pahontu is Fellow in European and International Politics and Policy at ÐÓ°ÉÂÛ̳ European Institute.