The Paradox of Redistribution in Time. Social Spending in 53 Countries, 1967-2018

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October 2021
Paper author(s): 
Xabier Garcia-Fuente
Topic: 
Fiscal Policy - Public and Welfare Economics
Year: 
2022

Korpi and Palme (1998) famously suggested the existence of a Paradox of Redistribution: although programs targeted to the poor may be more redistributive per unit of expenditure, universal programs reduce distributive conflicts, leading to bigger, more egalitarian welfare states. However, recent works question the existence of this trade-off. My paper adds a dynamic, long-term perspective to this literature: it analyzes the relationship between the progressivity and the redistributive impact of social transfers in 53 rich and middle-income countries, using microdata from 479 household surveys harmonized by LIS. My results show that the relationship between the redistribution obtained by social transfers and their progressivity is non-monotonic and is contingent on initial policy positions: welfare states that focused on the poor have grown bigger and more egalitarian by moving up the income ladder to include richer constituencies, while welfare states that focus on the rich are unable to reach down the income ladder and remain stuck at very low levels of redistribution. This reflects how social policies shape distributive conflicts: expanding upwards in the income distribution narrows the gap between contributors and beneficiaries, easing distributive conflict and allowing welfare state expansion. In contrast, expanding downwards draws a clear gap between contributors and beneficiaries, making welfare state politics zero-sum. This fits with evidence on the long-term evolution of universal welfare states—as they grew from means-tested cores to earnings-related universalism—and countries with elitist social policies, exemplified by Latin American countries, that remain captured by the middle classes and the rich. In short, my results reinforce the idea that increases in redistribution are driven by status-preserving considerations—not by attempts at soaking the rich.

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