Can the structure of inequality explain fiscal redistribution? Revisiting the social affinity hypothesis

Abstract

Abstract Lupu and Pontusson (2011) argue that the structure of income inequality, rather than its level, can explain differences in fiscal redistribution across modern welfare states. Contrary to the assertion that there is robust evidence in support of this proposition, the present article challenges the argument that the distributional allegiances between social groups are a function of relative income distances. It makes three central claims: (a) skew in the earnings distribution, the key explanatory variable in the empirical tests of the original paper, can best be understood as an outcome of public policy and labor market institutions, and hence as endogenous to the welfare state; (b) relative earnings differentials are not a valid proxy measure for the structure of income inequality, the concept of theoretical interest; and (c) there is no indication that skew in the distribution of incomes (rather than earnings) is positively associated with fiscal redistribution. In sum, revisiting an influential contribution to the literature offers no support for the proposition that the structure of inequality has consequences for fiscal redistribution.