Does Income Affect Redistribution Preferences?

Theories in Political Economy that aim to explain redistribution preferences often assume rational agents. The ubiquitous Meltzer-Richard (MR) model posits that preferences are rooted in individuals’ position in the income distribution (Meltzer and Richard, 1981). The argument is that the demand for redistribution decreases with income since richer individuals gain less from distributive spending and contribute more to its financing via taxes. While Meltzer and Richard’s (1981) aggregate-level predictions could not be corroborated consistently, i.e. a consistent relationship between country-level inequality and the demand for redistribution, it is widely accepted in contemporary Political Economy that there is a causal relationship between income and redistribution preferences on the individual level (e.g., Iversen and Goplerud, 2018; Midtbø, 2018). This is backed by a large body of empirical research that consistently prescribes a pivotal role to income in preference formation (e.g., Franko et al., 2013; Rehm, 2009). The objective of this article is to challenge the view that income has a direct effect on redistribution preferences, based on a novel modeling approach with particular focus on causal effect identification, and a theoretical approach that rather stresses the importance and longevity of values and beliefs. An emerging literature argues that individuals rely on values and beliefs rather than self-interest in their preference formation, which prior research has insufficiently accounted for in cross-sectional estimates (see Margalit, 2019). Applied to the research of redistribution preferences, it implies that income may not have an effect despite the support of a plethora of quantitative results. The article thus revisits this theoretical debate on self-interest-based vs. normative preference formation and subsequently assesses the causal effect of income on redistribution preferences with appropriate methods. Panel data from the British Election Panel (BES) are used to analyze redistribution preferences in general and data from the Swiss Household Panel (SHP) to assess preferences on progressive taxation in specific, both of which should exhibit clear income effects. Effect estimates are derived from a combination of matching methods and a Difference-in-Difference (DiD) estimator. The results show that even though richer individuals have much lower support for redistribution, people who become richer or poorer do not adjust their preferences. There is thus no discernible causal effect of income dynamics in the analyzed countries. This represents a striking blow to one of rational choice theory’s core claims. References Franko, W., Tolbert, C.J. and Witko, C. (2013) ‘Inequality, Self-Interest, and Public Support for “Robin Hood” Tax Policies’, Political Research Quarterly, 66, 923–937. Iversen, T. and Goplerud, M. (2018) ‘Redistribution Without a Median Voter: Models of Multidimensional Politics’, Annual Review of Political Science, 21, 295–317. Margalit, Y. (2019) ‘Political Responses to Economic Shocks’, Annual Review of Political Science, 22, 277–295. Meltzer, A.H. and Richard, S.F. (1981) ‘A Rational Theory of the Size of Government’, The Journal of Political Economy, 89, 914–927. Midtbø, T. (2018) ‘Democracy and the demand for government redistribution: A survey analysis’, European Journal of Political Research, 57, 829–844. Rehm, P. (2009) ‘Risks and Redistribution’, Comparative Political Studies, 42, 855–881.