Income Stagnation and the Politics of welfare state Retrenchment in Advanced Economie with Tim Vlandas, Department of Social Policy and Fellow in St Antony’s College, University of Oxford.
Seminar of the Key Theme "The transformations of capitalism"
Sciences Po, Salle du Conseil, 13 rue de l'Université, 75007 Paris, Compulsory Registration
What is the effect of income stagnation on the welfare state? To answer this question, we develop a simple political economy model linking income stagnation to greater political support for welfare state retrenchment via three distinct mechanisms: (1) an altruistic mechanism where stagnation reduces altruistic motives for welfare state redistribution; (2) an insurance as ‘luxury good ‘ mechanism where stagnation decreases the relative perceived gains from insurance; and (3) a subjective cost of taxation mechanism where stagnation heightens the relative costs of taxation. To test our argument, we combine novel data on the evolution of income to existing datasets at the micro level on individual preferences and electoral behaviour on the one hand and at the macro level on welfare state retrenchment on the other hand. Our micro-level empirical analyses are consistent with our expectations. First, individuals facing stagnant or lower incomes support spending cuts and tax cuts to a greater extent. Second, individuals penalise government for retrenchment when their incomes are growing, but reward them if their income are stagnating. Thus, governments have electoral incentives to implement spending cuts when incomes stagnate. In turn, at the macro level, fixed effect regressions reveal that retrenchment is more pronounced in countries experiencing lower income growth. Taken together, our findings link the literature on income stagnation to comparative political economy studies of changing welfare states. In contrast to accounts focusing on the level of income and risk, this article helps us make sense of the puzzle why governments find it politically attractive to retrench their welfare states, not despite but because of difficult economic times. Income stagnation does not only undermine the fiscal sustainability of welfare states, it also saps its political foundation.
Tim Vlandas is Associate Professor in the Department of Social Policy and Fellow in St Antony’s College, both at the University of Oxford. He holds a PhD in European Political Economy from the London School of Economics and Political Sciences, where he also worked as a research officer. His main area of expertise is comparative political economy, with a particular interest in the relationship between electoral politics, public policies and socio-economic outcomes. He has just co-authored a book entitled “Foreign States in Domestic Markets: Sovereign Wealth Funds and the West”, published by Oxford University Press. His research has been published in over 25 academic journals, including Comparative Political Studies, Political Science Research and Methods, Politics&Society, Socio-Economic Review, Scientific Reports, Work, Employment and Society, West European Politics, Social Policy and Administration, European Political Science Review, and Journal of Common Market Studies. He has received awards from the American Political Science Association and the European Network for Social Policy Analysis. His work has been cited by the UK House of Commons, World Bank, International Labour Organisation, Organisation for Economic Cooperation and Development, European Commission, and the United Nations. He is currently the co-convenor of the Political Economy and Welfare State standing group of the European Consortium of Political Research.
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