Risk of Poverty and Redistribution to the Poor. A Microsimulation Approach to Studying Political Representation.

Mature welfare states fulfill at least two functions: the reduction of inequality and the provision of insurance against adverse events. Much of the literature has analyzed these two functions separately, suggesting that the social policies that fulfill them stem from the demands of different groups. We question this approach. Instead, we argue that as labor market risks become more palpable for a growing number of people across the income distribution, redistributive policies aimed at low-income earners also increasingly fulfill an insurance function for higher-income groups, blurring the line between downward redistribution and social insurance. Consequently, demands for policies that reduce poverty risks garner political support from groups beyond those directly benefitting in monetary terms, as heightened perceived risks lead middle-income voters to seek insurance against sliding down the income distribution. Governments thus implement policies aimed at increasing bottom incomes in contexts of increased relative at-risk-of-poverty rates. We test our theory through original microsimulations, which enable us to isolate policy effects from macroeconomic and demographic changes. We rely on ‘EUROMOD’ to compute the poverty-alleviating effects of reforms in 28 European countries since the mid-2000s. Our results reveal a high degree of redistribution to the very bottom, mainly through the expansion of means-tested benefits or the use of progressive public pension provisions. Consistent with our expectations, this effect is partly driven by governments’ reaction to higher at-risk-of-poverty rates. Moreover, the effect of poverty risks on downward redistribution is particularly strong under left governments.