Inequality, Public Opinion And Redistribution
Socio-Economic Review (2008) 6, 35–68Advance Access publication August 22, 2007doi:10.1093/ser/mwm006Inequality, public opinion and redistributionLane Kenworthy 1 and Leslie McCall21Department of Sociology, University of Arizona, Tucson, AZ 85721, USA; and 2Department of Sociology, NorthwesternUniversity, Evanston, IL 60208, USACorrespondence: lane.kenworthy@arizona.eduAccording to the ‘median-voter’ hypothesis, greater inequality in the marketdistribution of earnings or income tends to produce greater generosity in redistributive policy. We outline the steps in the causal chain specified by the hypothesisand attempt to assess these steps empirically. Prior studies focusing on crosscountry variation have found little support for the median-voter model. Weexamine over-time trends in eight nations during the 1980s and 1990s. Heretoo the median-voter hypothesis appears to have little utility.Keywords: welfare state, redistribution, inequality, public opinionJEL classification: H public economicsIncome inequality has two components: (a) ‘market’ inequality and (b) government redistribution via taxes and transfers. In principle, the two can be combinedin any of a variety of ways: low market inequality with high redistribution, lowmarket inequality with low redistribution, high market inequality with moderateredistribution and so on. Of particular interest in the study of inequality is whathappens when market inequality is high or increases. Does government compensate with high redistribution in order to secure a relatively egalitarian distributionof posttax – posttransfer income?According to one influential theoretical approach, that is indeed what tends tohappen. This approach is based on a median-voter model of the politics of redistribution. Its best-known exposition is by Allan Meltzer and Scott Richard (1981).A higher level of market inequality implies a greater distance between mean andmedian (pretax – pretransfer) income, with the latter further below the former.The lower the median relative to the mean, the more the median income personor household is likely to benefit from government redistribution, in the sensethat the transfers she receives will exceed her share of the tax burden. Hence thegreater the amount of redistribution she will favor. More market inequality thusleads to political demand for more generous redistributive policy, which in areasonably responsive democratic polity should result in exactly that.# The Author 2007. Published by Oxford University Press and the Society for the Advancement of Socio-Economics.All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org
36L. Kenworthy and L. McCallThe median-voter model is intuitively compelling. And for those with egalitariansympathies its policy implications are encouraging, as it suggests that greatermarket inequality will tend to be offset (to some degree, at least) by greater redistribution. Our aim is to examine the utility of this hypothesis for understandingdevelopments in affluent countries in the 1980s and 1990s.There are four steps in the causal chain posited by the model:(1) People are aware of the true level of market inequality.(2) Where market inequality is higher, the median-income person or householdwill favor greater redistribution.(3) This preference will be expressed via voting, demands by organized constituencies and/or public opinion polls and focus groups.(4) Government will respond with more generous redistributive programs.Each of these steps is questionable on theoretical grounds (Burstein, 1998; Fong,2001; Moene and Wallerstein, 2003; Lenz, 2004; Kenworthy and Pontusson,2005). Individuals may have imperfect information about the true level ofinequality. Their preferences for redistribution may be guided by values ratherthan monetary self-interest. Voting and other political behavior may be basedon a variety of issues, rather than solely or mainly on redistributive policy. Andparties and governments may or may not respond to the desires of voters.However, our aim here is not to highlight the theoretical limitations of themodel. Instead, we examine the model’s empirical utility, focusing on the first,second and fourth steps in the hypothesized causal chain.The median-voter hypothesis can be conceptualized as a prediction aboutcross-sectional variation: countries with higher market inequality should havegreater redistributive generosity. As a variety of observers have noted, the empirical pattern among affluent countries is inconsistent with this hypothesis (Alesinaand Glaeser, 2004; Moene and Wallerstein, 2003; Kenworthy and Pontusson,2005; Iversen and Soskice, 2006; though see also Lübker, 2006). Redistributivepolicies in countries with higher levels of market inequality tend to be less generous, rather than more.However, the median-voter hypothesis may be more relevant as a predictionabout change over time within countries. It suggests that as inequality increases,the generosity of redistributive policy should increase. This is our interest here.We seek to examine whether increases in market inequality tended to generateincreases in redistributive generosity in eight affluent nations in the 1980s and1990s. The countries are treated as multiple cases for testing the median-voterhypothesis.Two recent studies have explored the association between changes in inequality and changes in redistribution in affluent nations. Milanovic (2000) andKenworthy and Pontusson (2005) each find evidence consistent with the
Inequality, public opinion and redistribution37median-voter hypothesis: market inequality (of household incomes) is positivelyassociated with redistribution. However, Kenworthy and Pontusson (2005)suggest that the actual causal path is not that specified by the median-votermodel. The over-time pattern exists not because citizens and policy makersresponded to increases in market inequality by increasing the generosity of redistributive programs. Instead, it is a function of the ‘automatic compensatory’effect of taxes and transfers. If income taxes are progressive, an increase in theearnings or investment income of those at the top results in a larger sharebeing taken by taxes. If more people become unemployed or disabled, morewill receive unemployment compensation or sickness/disability compensationor social assistance. Hence, redistribution will increase.Neither of these studies examined the hypothesized changes in awareness ofinequality and support for redistribution empirically. We do so here.1.Data, measures, methodWe examine over-time trends in market inequality, perceptions of the degree ofinequality, preferences for redistribution, and redistributive policy generosity ineight countries in the 1980s and 1990s. To ensure comparability, we use thesame data sources for all countries, though where possible we supplementthem with additional data from country-specific sources in order to fill in orextend the time series. The data we utilize, particularly those for publicopinion, are less than ideal. But they are the best available, and we believe theyare good enough to help shed some light on the utility of the median-voterhypothesis.1.1InequalityTo gauge changes in market inequality we use two types of data. The first is data onindividual earnings, which are from an unpublished data set assembled by theOrganization for Economic Cooperation and Development (OECD, 2006). Thedata set includes annual data on earnings for full-time employed individuals ina number of affluent countries since around 1980. The second is data onpretax– pretransfer (‘market’) household incomes from the Luxembourg IncomeStudy (LIS). The LIS database is the most reliable source of cross-nationally comparable data on the distribution of income in affluent countries (Atkinson andBrandolini, 2001; Smeeding, 2004). The LIS data are available in ‘waves’; formost countries there is an observation around 1985, 1990, 1995 and 2000.For individual earnings, we measure inequality using the ratio of the ninetiethpercentile in the distribution to the tenth percentile (P90/P10 ratio). For household incomes, we measure inequality with the Gini coefficient. It would be helpful
38L. Kenworthy and L. McCallto use the same inequality measure for both types of data, in order to have acommon metric. However, that turns out to be problematic (see Kenworthyand Pontusson, 2005). Fortunately, it is not critical for our analyses; our interestis mainly in the direction of change, and the two measures tend to yield similarconclusions regarding change. For both of these measures, larger numbers indicate more inequality.1.2Public opinionTo examine awareness of inequality and support for redistribution, we utilizepublic opinion data from the International Social Survey Program (ISSP). TheISSP provides the best available comparative data on public opinion regardinginequality and government redistribution (Brooks and Manza, 2006; Lübker,2006; Osberg and Smeeding, 2006; Svallfors, 2006). Three ISSP modules are particularly relevant for our purposes: the ‘Social Inequality’ modules of 1987, 1992and 1999. We use two sets of questions to tap public awareness of inequality. Oneis for pay inequality, the other for income inequality.For pay inequality we use calculations by Jonathan Kelley from a group ofquestions asking what pay level the respondent thinks each of various occupations receives. For a number of countries the survey includes 11 such occupations: farm worker, bank clerk, secretary, bus driver, bricklayer, unskilledworker, skilled worker, small shop owner, cabinet minister, doctor, andcompany chairman [sic]. However, for several countries only a subset of theseoccupations was included in the survey. To maintain consistency over time andacross countries, these calculations use responses for just three occupations:unskilled worker, skilled worker and chairman of a large national corporation.The measure, which is described in detail in the appendix here and in Kelleyand Zagorski (2005), is essentially the perceived pay level for the chair of alarge corporation divided by the average perceived pay level of a skilled workerand an unskilled worker. The average ratio among all respondents is used to represent the perceived level of pay inequality for the country as a whole. Thismeasure focuses on the perceived difference between a very high-paying occupation and two moderate- to low-paying occupations. This seems reasonablegiven that we measure actual inequality of individual earnings as a P90/P10 ratio.To tap public awareness of income inequality, we use the following question:‘How much do you agree or disagree with the statement “Differences in incomein [respondent’s country] are too large”?’ There are five response choices: stronglydisagree, disagree, neither agree nor disagree, agree and strongly agree. This question does not directly gauge awareness of how much inequality there is. Instead, ittaps both awareness of the degree of inequality and attitudes about the fairness ofthat perceived level of inequality. In examining change over time, however, we
Inequality, public opinion and redistribution39believe the question can plausibly be presumed to measure changes in awarenessof inequality. If we assume that people’s views about how much inequality is toomuch are roughly constant over time, then changes in responses to this questionwill primarily gauge changes in people’s views about how much inequality thereis. This appears to be a reasonable assumption, as data from the ISSP suggest thatthere was little or no change during the 1980s and 1990s in views about howmuch inequality is too much (Kelley and Zagorski, 2005, pp. 343-345).1The question we use to tap public support for redistribution is: ‘How much doyou agree or disagree with the statement: “It is the responsibility of the governmentto reduce the differences in income between people with high incomes and thosewith low incomes”?’ The response choices again are strongly disagree, disagree,neither agree nor disagree, agree, and strongly agree. This question also was askedin three ISSP ‘Role of Government’ modules, in 1985, 1990 and 1996. For some ofthe countries we therefore have as many as six observations for this question.Plainly, responses to the ‘government should reduce income differences’ question give us only partial insight into the level of public support for redistributivepolicy generosity. Two key pieces of information are missing. One is how muchrespondents are willing to pay for redistribution. Responses might differ if thequestion were posed in such a way that a self-perceived middle-income respondent would have to accept higher tax payments in order to finance redistributionto the poor. The second has to do with the reference point. The question asksabout support for redistribution in the abstract, so we cannot tell whether arespondent who agrees or strongly agrees that government should reduceincome differences believes that this implies more redistribution than currentlyoccurs. Nonetheless, these data are the best available for examining this keycomponent of the median-voter hypothesis.Note that we do not focus on the attitudes of the median income person orhousehold. It would make little sense to do so, since there is considerable variationin awareness and attitudes among those in the middle of the distribution. Instead,we use the average level of perceived inequality and the average degree of supportfor redistribution as proxies. One other possibility might be to consider theaverage for the middle 10 or 20% of the distribution (that is, from the 45th percentile to the 55th, or from the 40th to the 60th). However, income is coded1There is another ISSP question that more directly taps awareness of inequality: ‘These five diagramsshow different types of society. Which one do you think best describes [respondent’s country] today. . . (a) The great mass of people at the bottom. (b) A society like a pyramid. (c) A pyramid except thata few people are at the bottom. (d) A society with most people in the middle. (e) Many people near thetop, and a few near the bottom’. Unfortunately, because this is a categorical measure, it does not yielduseful information about the perceived level or degree of inequality. The five response choices cannotbe unambiguously rank-ordered in terms of the degree of inequality they indicate. Also, the questionwas included only in 1992 and 1999, and not in 1987.
40L. Kenworthy and L. McCallinto categories in the ISSP, and that prevents us from being able to consistentlyisolate a particular segment of the distribution across years and countries.2A potential problem in examining trends in public opinion is that observedchanges or lack of changes may reflect compositional shifts in the population,rather than shifts (or non-shifts) in awareness of inequality or support for redistribution. Suppose, for example, that a country experiences a significant increase in (earnings and/or income) inequality during a given period of time. The median-voterhypothesis predicts that this will cause an increase in the mean response to the‘income differences are too large’ question. Suppose, however, that during theperiod the country’s population ages somewhat (due to longer life expectancy anda declining birth rate) and that older people are less likely than younger people to perceive income differences as too large. This shift in the age structure of the populationcould offset the impact of the change in inequality, yielding no change in the meanresponse to the ‘income differences are too large’ question. Other compositionalshifts in education, incomes, work circumstances and so on might have similar effects.To examine this possibility, we estimate two individual-level ordinary leastsquares (OLS) regressions for each country. Responses to the questions usedfor two of our three public opinion measures—the ‘Income differences are toolarge’ question and the ‘It is government’s responsibility to reduce income differences’ question—are the dependent variables in the regressions. (We are unable todo this for the ratio measure of perceived pay inequality.) Year dummyvariables—one or two, depending on how many years of ISSP data are availablefor the particular country—are the independent variables of interest. Theregressions include a variety of controls for individual characteristics: education(years of schooling completed), income (family income), subjective class position, employment status (employed or not employed), union membership(member or nonmember), age and sex. If a year dummy variable is statisticallyand substantively significant in such a regression, this heightens our confidencethat a genuine change has occurred in the perceived level of inequality or insupport for redistribution. We do not show the full results of these regressionshere (they are available on request). Instead, we simply note them in the text.1.3RedistributionThe focus of the median-voter model, and of much of the broader interest amongsocial scientists in redistribution, is on the degree of intended generosity of socialprograms.2For example, in country A there might be 10 income categories. In 1987, categories 4 and 5 mightencompass the middle 20% of the income distribution, but in 1992 and 1999 the categories mightallow us to capture only the middle 16% or the middle 27%. Country B may have 21 incomecategories, which allow us to isolate the middle 18% in 1987 and the middle 22% in 1992. And so on.
Inequality, public opinion and redistribution41The measures most commonly used by researchers studying social policy generosity (or ‘welfare state effort’) are government transfers as a share of GDP andsocial policy expenditures as a share of GDP (Hicks, 1999; Iversen and Cusack,2000; Huber and Stephens, 2001; Kittel and Obinger, 2003; Castles, 2004;Brooks and Manza, 2006). An alternative, used in several recent studies, is ameasure of what might be referred to as ‘actual redistribution’: the difference(absolute or percentage) between inequality of pretax –pretransfer (market)income and inequality of posttax – pretransfer income (Milanovic, 2000; Bradleyet al., 2003; Kenworthy, 2004, 2007; Kenworthy and Pontusson, 2005; Mahlerand Jesuit, 2006). However, both of these measures fuse intended generositywith need. Expenditures and actual redistribution will be higher if programs arestructured more generously but also if more people are unemployed, elderly,poor and so on. As suggested earlier, this is a problem for testing the median-voterhypothesis: if market inequality and redistribution both increase over time, thelatter could be a product of increases in the number of people making use of redistributive programs rather than of changes in the generosity of those programs.A better strategy for assessing the intended generosity of programs is to use ameasure of program details (Esping-Andersen, 1990; Korpi and Palme, 2003;Allan and Scruggs, 2004). Such a measure directly taps the degree of intended generosity of redistributive programs, which is the theoretically relevant concept. Untilvery recently, no such measure was available with over-time data. We use severalhere. Three are from a data set compiled by Lyle Scruggs (2004) on variousprogram details for three key types of redistributive policies: public pensions, unemployment insurance and sickness insurance. The data include measures of eligibilitycriteria, replacement rates and benefit duration. Esping-Andersen (1990) suggestedthat these various program components can usefully be combined in a single index of‘decommodification’. We use Scruggs’ calculations of decommodification scores,which are based on a revision of Esping-Andersen’s scoring procedure (Scruggs,2005; Scruggs and Allan, 2005), to examine over-time trends in redistributivepolicy generosity. These data are available for all of the countries we analyze.Higher decom
Income inequality has two components: (a) ‘market’ inequality and (b) govern-ment redistribution via taxes and transfers. In principle, the two can be combined in any of a variety of ways: low market inequality with high redistribution, low market inequality with low redistribution, high market inequality
increases and if it decreases in income inequality. If income distribution is Pareto, the rate of redistribution increases monotonically in income inequality if ˇ 0:78 and it has an internal maximum if . Moreover, the maximum occurs at a lower level of inequality, so that the rate of redistribution de
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