Inequality, Social Insurance and Redistribution

Is the political support for welfare policy higher or lower in less egalitarian societies? We answer the question using a framework in which welfare policies are modelled as publicly financed insurance policies that pay benefits in a redistributive manner. With the majority of voters having both redistributive and insurance motives for supporting welfare spending, the impact of inequality on voters ’ support for welfare depends on how benefits are targeted. If benefits are mostly paid to persons who are employed, redistribution dominates and greater inequality increases support for welfare spending. K benefits are mostly targeted to those without earnings, however, the insurance aspect dominates and greater inequality reduces support for welfare spending. When voters choose both the level and the targeting of benefits, we find that the insurance aspect dominates in the sense that greater inequality is associated with lower benefits targeted to those without earnings. This prediction is contrary to the dominant view in the literature but, as we show, consistent with the evidence among advanced industrial societies