Revisiting the Relationship Between Access to Credit and Support for Redistribution

Does access to credit reduce support for redistribution? Existing research argues that individuals who can borrow are less supportive of the welfare state, but these studies have focused on advanced economies (with well-developed private credit markets). In this paper, we focus on Latin America, where the strength of private credit markets varies across countries. We exploit plausibly exogenous variation in the U.S. federal funds rate to examine the causal effect of access to credit on redistributive attitudes. We theorize that individuals in countries with strong private credit markets will reduce their demand for redistribution as credit access increases, but individuals in countries with weak private credit markets will prefer greater welfare spending because of the expanded fiscal capacity of the public sector and distrust. We find strong empirical support for our theory, nuancing accounts linking access to credit to diminished support for redistribution.