How Do Taxes and Benefits Shape Popular Support for Redistribution? Young-hwan Byun Swedish Institute for Social Research (SOFI), Stockholm University, Sweden Younghwan.byun@sofi.su.se April 27, 2017

Citizen’s support for redistribution Growing income inequality and challenges to welfare state legitimacy, it deserves renewed attention A further role of the welfare state becomes critical. Economists of income studies propose a more progressive tax to finance welfare state efforts (Atkinson, 2015) However, under what conditions redistribution is politically sustainable remains a subject of continuous scholarly debate

Institutional Contexts for Redistribution The concept of ‘embedded preference’ (Brooks & Manza, 2007) Individuals’ redistributive preferences are embedded in the historical and institutional contexts of the society Two main institutional theories are can be said to compete (Korpi & Palme, 1998; Rothstein, 1998). In both, a universalist welfare state is conducive to popular support for redistribution, but Is it universal benefits to all that makes people support redistribution? (Korpi & Palme, 1998) Or is it universal tax contributions by all? (Rothstein, 1998)

Three Major Shortcomings of Previous Research Empirical support is not established for either account (Brady & Bostic, 2015). One-sided analysis of the welfare state focusing on either taxes or benefits Lack of direct assessment of the underlying causal mechanism the contingent preferences of the middle class Inadequate measures of institutional universalism Overall dispersion of taxes/benefits vs. their levels across income strata (Olson, 1971)

Critical synthesis of the two theories By analyzing both tax and benefit sides of the welfare state in an integrated framework, I examine to what extent taxes and benefits separately account for cross-national differences in redistribution preferences how taxes and benefits interact in shaping such preferences

Theoretical Framework Contingent middle class’ support for redistribution is the core causal mechanism shared by the two institutional theories. The gist of the universalism issue is whether or not the welfare state provides the middle class with substantial benefits. Likewise, the crux of the universalist dimension of cost-sharing is whether the welfare state ensures that low-income individuals share tax burdens or leaves them as sheer beneficiaries, relying on middle- (and high-) income people’s contribution. Of the two institutional conditions, whether others pay as much as “I” do (normative legitimacy) matters, but less so than whether “I” receive benefits (economic interests). I expect that the effects of taxes on low incomes are insignificant or weak on their own, but that they influence the effects of benefits to the middle class.

Hypothesis Higher benefits to the middle class are conducive to broad support for redistribution. However, the effects of benefits to the middle class should be larger (smaller) if taxes on low incomes are higher (lower). This is because a high-tax rate on low incomes helps middle- and high-income people to support redistribution as low-income people are not then perceived to be “dependent”, due to their substantial contribution to the welfare state.

Data and Methods 16 industrialized democracies (around 2006), # of Individuals (16,080) Australia, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Japan, the Netherlands, Norway, Spain, Sweden, Switzerland, the UK and the US. Multi-level models Individual respondents are nested within country Country-level effects can be estimated more efficiently than with macro-level models Data The Luxembourg Income Study Database (LIS). The International Social Survey Programme’s Role of Government Module Datasets (ISSP)

Country-level Institutional Variables (LIS) The level of benefits to middle income strata measured by the averaged share of disposable household income from social transfers among middle income households middle-incomes: an income between 75 and 200 percent of the median household income The level of tax rates on low incomes measured by the averaged tax burden among low income households low-incomes: an income below 75 percent of the median income The interaction term of benefits to the middle class and taxes on low-incomes

Benefits to the middle class and support for redistribution

Taxes on low incomes and support for redistribution

Individual-level Variables (ISSP) Gender Age Marital status Education-level Employment status Employment sector Protestant Religious activity Union membership.

Dependent variable Redistribution preferences are measure responses to the survey question from the ISSP, “Do you think it should or should not be the government's responsibility to reduce income differences between the rich and the poor?” The original responses fall into four categories – strongly disagree, disagree, agree, and strongly agree. An additional reconstruction into a binary response: 1 for agree and 0 for disagree to compare the outcome with Brady & Bostic’s (2015)

Multilevel regression results on individual redistribution preferences (4-point scale responses) (1) (2) (3) (4) Benefits to the middle class 0.017* 0.018** 0.028*** (0.009) (0.008) (0.010) Taxes on low incomes -0.014** -0.015*** 0.010 (0.006) (0.019) Middle class benefit*low income tax -0.001 (0.001) The numbers in parentheses are standard errors. *p<..1; **p<.05; ***p<.01

Multilevel logistic regression results (odds ratio) (1) (2) (3) (4) Benefits to the middle class 1.040** 1.043*** 1.072*** (2.01) (2.65) (3.48) Taxes on low incomes 0.969** 0.967*** 1.038 (-2.28) (-2.88) (0.99) Middle class benefit*low income tax 0.996** (-1.96) The numbers in parentheses are Z-scores. *p<..1; **p<.05; ***p<.01

Effects of Benefits & Taxes The benefit level to the middle class has significant and positive effects on popular support for redistribution (model 1), whereas the tax level on low incomes has negative effects (model 2). When low income tax levels are controlled for, the effects of benefits to the middle class become stronger (model 3). And so do the effects of taxes on low incomes. With the interaction term, only the effects of the benefits to the middle class are significant (model 4). These results are consistent when using the binary dependent variable

Multilevel regression results on individual redistribution preferences (4-point scale responses) Age 0.002*** (0.005) (0.006) Gender 0.134*** 0.135*** (0.015) Education level -0.125*** -0.126*** Marital status 0.035*** Employment status 0.041*** 0.042*** (0.007) Employment sector -0.074*** (0.008) Protestant -0.094*** -0.090*** -0.091*** -0.090** (0.019) Religious activity 0.006 -0.007* -0.006 (0.004) Union membership -0.111*** -0.066*** -0.112*** (0.011) N 16080 The numbers in parentheses are standard errors. *p<..1; **p<.05; ***p<.01

Effects of individual characteristics Consistent with past research, the elder, female, less educated, the married, the employed, public sector employees, and union members are more likely to support redistribution. Whereas the younger, male, more educated, the unemployed, private sector employees, non-union members, and protestants are less likely to support redistribution. Inconsistent with previous research, religious activity does not have significant effects.

Taxes and benefits for the middle class