The Impact of Income Inequality on Popular Support for
Redistributive Policies in Canada, 1993-2008
For:
Prof. Rodney Haddow
POL 224
TA: Anthony Sealey
By:
Your Name Here
March 11, 2014
Introduction
Incomes have become increasingly unequal in most modern democracies (Alderson and Doran
2013; OECD 2011, 24). Although much of the increase can be attributed to shifts in market
incomes, social policies geared towards redistribution have typically failed to keep pace with
these changes. As a result, incomes after taxes and transfers have also become increasingly
unequal in most modern societies (OECD 2011, 37), including Canada (Fortin et al. 2012;
Frenette, Green, and Milligan 2009). Social scientists provide two apparently incommensurate
predictions about how this increase in inequality may have affected public opinion. One
perspective, which typically approaches the problem by exploring trends in a single country over
time, suggests that an increase in inequality will eventually lead to greater support for
redistribution (Meltzer and Richard 1981; Roberts 1977; Romer 1975). Another paradigm, often
followed by sociologists, contends that there is a negative relationship between inequality and
public support for redistribution (Brooks and Manza 2006a, 2007; Esping-Andersen 1990,
1999). Existing empirical evidence fails to provide convincing support for either view, however.
This suggests, then, that to fully understand the nature of the relationship between inequality and
public opinion, cross-national and longitudinal patterns must be explored simultaneously. This is
the primary goal of the present paper.
Relying on longitudinal evidence from public opinion in Canada’s ten provinces, we
shall argue that the differences in pattern merely reflect the fact that the two types of data—
cross-sectional and longitudinal—consider different sources of variation. We argue that it does,
indeed, make rational sense for citizens to be increasingly more likely to support redistributive
policies when inequality within their country rises. As inequality increases, more people stand to
benefit from redistribution, and hence overall public opinion becomes more supportive as well.
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This argument is not necessarily inconsistent with a negative cross-sectional relationship
between inequality and support for redistribution, however. Other national-level factors related
to both inequality and public opinion may confound the relationship between the variables when
analyzed in a cross-sectional model. We shall demonstrate results consistent with our
conjectures. When we treat each of the five survey years in each province as separate contexts
and explore the pattern among all 50 surveys, income inequality and public support for
redistribution are negatively related. Nevertheless, when we explore the relationship between
inequality and public opinion on redistribution within provinces, the relationship is generally
positive. Before discussing these findings in detail, we begin with a discussion of the previous
research and theoretical rationale for our findings. We then discuss our data and methods. After
discussing the results of our analyses, we discuss the implications of our results, both for future
academic research and for policy makers.
Explaining the Relationship between Inequality and Public Opinion
The classic theoretical model of Meltzer and Richard (1981) has had substantial influence on
research investigating the relationship between inequality and public opinion. The model starts
with the basic premises that voters tend to be informed and rational. It further argues that public
opinion on redistribution largely reflects preferences of the median voter. Key implications of
the model are that (1) those with higher incomes oppose redistribution while those with lower
incomes support it and (2) as income inequality increases, citizens will use the political
machinery of the state to increase redistribution to less-advantaged citizens. This theory has
enjoyed widespread popularity in social science research on this topic.
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Despite its popularity, existing empirical evidence provides only modest support for
Meltzer and Richard’s model. While there is clear evidence that those with higher levels of
income and employment security are less likely to support redistribution than those with lower
socioeconomic status (Bean and Papadakis 1998; Klugel and Smith 1986; Johnston el al. 2010;
Svallfors 1997), it is less clear that aggregate public opinion is more supportive of redistribution
as income inequality increases. Using data on the US from the 1930s to the 1970s, Meltzer and
Richard (1983) demonstrated that the share of aggregate income redistributed via government
spending is positively affected by the ratio of mean to median income. On the other hand,
Perotti’s (1996) investigation of differences in the relationship between inequality and public
opinion on a broad range of tax and social spending issues in democratic and non-democratic
regimes concludes that the relationship is “very weak, or even non-existing” (Perotti 1996, 172).
Bassett, Burkett and Putterman (1999) also fail to find a statistically significant relationship in
the expected direction in their cross-national analysis. Similarly, Moene and Wallerstein (2001,
2003) suggest that inequality has no influence on attitudes toward a range of types of social
insurance spending. Others have also failed to find evidence that changes in income inequality
are driven by the policy responsiveness mechanism outlined by Meltzer and Richard (see
Kenworthy and Pontusson 2005; Milanovic 2000).
Other research concentrates directly on the relationship between inequality and public
opinion. Weakliem, Andersen, and Heath (2005), for example, find that public opinion affects
levels of income inequality cross-nationally, but find no evidence that income distributions
influence attitudes. Lübker (2007), on the other hand, presents cross-national empirical evidence
that yields no indication of a statistically significant relationship between income inequality and
public support for redistribution, attributing this finding to the influence of varying social justice
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norms. Using time-series cross-sectional micro-level data from Western Europe, Rueda and
Pontusson (2009) identify a positive relationship between inequality and support for the
reduction of differences in income levels. Longitudinal analyses have also yielded mixed results.
Kenworthy and McCall (2008) provide a detailed assessment of longitudinal trends in inequality
and changes in aggregate levels of public support for redistribution in a variety of cross-national
settings, reaching the conclusion that there is little evidence of any consistent relationship. In a
longitudinal analysis of the Canadian case from 1980 to 2005, however, Andersen and Curtis
(2013) find that income inequality has a positive effect on support for welfare and social service
programs for the poor.
In our view, these inconsistent findings reflect that the Meltzer-Richard model is undertheorized. Its shortcoming is the failure to consider political context. In this regard, an
institutionalist approach helps shed light on cross-national differences. Specifically, we gain
insight from Esping-Andersen’s (1990) seminal work on welfare states, which outlines the
process whereby different states’ social policies have evolved into three distinctive types:
conservative, liberal or social democratic. Researchers employing this theoretical approach
stress the importance of divergent institutional trajectories on public opinion formation, drawing
attention to how political institutions and public policy influence people’s expectations regarding
the role of the state (Esping-Andersen 1999; Larsen 2006; Rothstein 1998; Svallfors 2003,
2010). Empirical evidence suggests that values and beliefs differ by state in large part because of
different institutions which augment the effects of the interests of their populations (Arts and
Gelissen 2003; Jaeger 2006, 2009; Linos and West 2003; Svallfors 1997, 2003, 2010). If we
contrast liberal welfare states with social democratic states, for example, we can see the relative
weakness of left parties and unions in the former as being at least partly responsible for both the
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weaker social safety net and relatively low overall levels of support for redistribution in
countries characterized by this regime type.
In short, the expectations of the institutionalist approach and the interest-based approach
emphasize the effects of different types of variation on support for redistribution. It is perfectly
reasonable, then, to expect that these two types of variation could result in a different pattern
within and across contexts (see, for example, Kenworthy and McCall 2008). On the one hand, it
is sensible to suggest that higher levels of inequality will tend to have publics who are less
supportive of redistributing income, such that at a given point in time, income inequality will be
negatively correlated with support for redistribution. However, it is equally sensible to suggest
that more redistributive welfare states are constituted by populations with beliefs and
expectations that are consistent with more egalitarian outcomes, while those with less
redistributive institutions will have populations that accept higher levels of inequality. Taken
together, these assertions imply that the relationship between income inequality and public
opinion could differ according to whether it is explored within provinces or across them. In other
words, the seemingly conflicting results from previous theory and research are not contradictory
at all. Instead, different processes underlie them.
We assess the relationship between public opinion on redistribution within and across
Canada’s ten provinces between 1993 and 2008. Guided by the discussion above, we expect that
the cross-sectional relationship between income inequality and support for redistribution is
negative (Hypothesis 1). That is, if we control for time and assess the between-province
relationship—i.e. if we consider surveys within provinces as independent contexts without
explicitly considering that the political context within provinces affect opinions in different
ways—we will find that people are less supportive of redistribution as inequality rises. Simply
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put, this hypothesis implies either that public opinion gets what it wants or that public opinion
wants what it gets. Contexts with weak preferences for redistribution also have weak
redistributive policies. In contrast, when controlling for provincial context in order to investigate
the within-province relationship, we expect public opinion to become more supportive of
redistribution within a particular province as income inequality rises (Hypothesis 2).
The Dynamics of Income Inequality: Canada in Comparative Perspective
Before exploring the relationship between public opinion and income inequality it is helpful
to contextualize the trends in income inequality in Canada as a whole and within each of its
ten provinces. Figure 1 illustrates trends in post-tax-and-transfer inequality—measured by
Gini coefficients (Solt 2009a, 2009b)—in a broad range of post-industrial democratic states.
We trace the trend in income inequality for each of the countries using nonparametric
regression—lowess smooths (Andersen 2009). Differing trends clearly indicate that global
macro-economic forces do not affect all countries identically, and that domestic political
institutions and political culture play a role. Looking specifically at Canada, we see that
economic inequality increased gradually during the late 1980s and early 1990s and rose
drastically in the mid-1990s, at least partly as a result of provincial reactions to the fiscal
retrenchment policies of the Canadian federal government during this period (see the edited
volume by Banting and Myles 2013). Since about 2000, however, economic inequality has
leveled off and even declined slightly.
It is also helpful to assess how the Canadian pattern compares to trends in other
similar nations. In the United Kingdom, for example, inequality rose rapidly at the end of the
Conservative government headed by Margaret Thatcher, but then decelerated and leveled off
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during John Major’s Conservative and into Tony Blair’s Labour Party government. Similarly,
in Belgium, New Zealand, and Portugal inequality initially rose sharply during the 1990s but
has decreased in recent years, whereas in Germany and the Netherlands, inequality has
increased modestly and only recently. Four cases—Denmark, France, Ireland, and
Switzerland—actually experienced net decreases in inequality during the time-period
considered. Despite these variations, at least within the political economies of post-industrial
democracies, increasing income inequality has been an international trend. In this regard,
Canada was no exception.
We now turn to consider patterns of income inequality within the Canadian provinces
over the same time period. Before exploring the data, it is important to note that Canada is one
of the most decentralized federal states in the world (Watts 1996, 1999, 2008). Canadian
provinces have a particularly high degree of autonomy with respect to social policy in
comparison to other federal states, particularly with respect to redistribution. Figure 2 illustrates
trends in income inequality in each of the ten Canadian provinces. Although there is a general
increase in inequality in all provinces except Prince Edward Island, there are clear differences in
the trends that can at least partly be explained by politics. Saskatchewan had the highest level of
economic inequality of any Canadian province at the beginning of the time-period observed but
experienced a marked decline throughout the mid 1990s when its provincial legislature was
dominated by the New Democratic Party. Since then, however, the right-wing Saskatchewan
Party has become increasingly influential (Docherty 2011, 194; Johnston 2012, 8; Warnock
2004, 382-3)—which can perhaps partly explain why this province has since experienced the
most rapid increase in inequality in Canada, resulting in Saskatchewan returning to the forefront
of Canadian provincial inegalitarianism. On the other hand, the trajectory in Ontario has been
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quite different. Inequality increased consistently in the late 1980s and throughout the following
decade even despite the election of the New Democratic Party in the early 1990s. Inequality has
remained relatively high and stable since.
Public Opinion and Inequality
Having first outlined recent cross-national and cross-provincial trends in economic inequality,
we now turn to the relationship between macro-level inequality and aggregate-level support for
redistribution. We begin by assessing the impact of inequality on popular support for the public
provision of economic security, the first of the two types of redistributive public policies
considered in our analysis. Figure 3 displays scatterplots of both the cross-provincial and
longitudinal relationships between inequality and support for this type of redistribution. Simple
OLS regressions estimate the cross-sectional or longitudinal relationship for each year or
province of the data considered.
The top row of Figure 3 depicts the cross-sectional relationship—identified when
controlling for time. We see quite clearly that the general pattern is consistent with some
previous findings: there is a negative relationship between macro-level inequality and support
for redistribution. Conversely, the bottom rows show the longitudinal relationship—isolated
when controlling for place. Here, we see a dramatically different pattern, with eight of the ten
estimated relationships being positive.
We now turn to consider the impact of inequality on support for generalized income
equalization, the second of the two redistributive policy types that we consider. Figure 4 displays
scatterplots of both the cross-provincial and longitudinal relationships between inequality and
popular support for this type of redistribution. Again, estimates of the cross-sectional
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relationships are presented on the top row of graphs, while the longitudinal relationships are
displayed on the bottom. The patterns here are entirely consistent with those for the preceding
type of redistribution. Each of the five estimated cross-sectional relationships are negative,
whereas eight of the ten estimated longitudinal relationships are positive.
For a more rigorous test of our hypotheses, we now turn to the multilevel logistic
regression models predicting support for the two types of redistribution. As mentioned earlier,
three separate sets of models are presented for each of the two types of redistribution,
respectively. The first incorporates individual-level controls and a macro-level measure of
inequality. In the second, we introduce fixed effects or ‘dummy’ variables for each survey year
in order to isolate the cross-sectional impact of income inequality. The first survey year (1993) is
used as the base of comparison, with separate effects being estimated for each successive wave.
Model 3 differs from Model 2 in that the fixed effects for survey year have been removed and
instead replaced with fixed effects for province. In other words, the model allows us to isolate
the longitudinal impact of income inequality.
The results of these three models for the first type of redistribution considered—i.e. the
public provision of economic security—are shown in Table 1. The findings are broadly
consistent both with each other and with the results of previous scholarship. Starting with the
individual-level controls presented in Model 1.A, we see that women and Catholics are more
likely to support this type of redistribution than men and Protestants. Respondents with lower
incomes and lower levels of labour-market security are also more likely to support the public
provision of economic security than those with higher incomes and more labour-market security.
More important for our purposes are the effects of place and time. In Model 1.A, we can
see that the net effect of inequality is ambiguous; the estimated relationship is negative, but it is
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not statistically significant at the generally accepted five percent level. The results of Model 2.A,
however, demonstrate clear support for our first hypothesis. When holding the time-period of the
survey constant in order to isolate the cross-sectional effect, the multivariate analysis of support
for the public provision of economic security indicates that the predicted effect of cross-sectional
inequality is negative. We conclude, then, that at a given point in time, the relationship between
income inequality and support for redistribution tends to be negative. Further, Model 3.A
provides clear support for our second hypothesis. When holding the geographical context
constant in order to isolate the impact of inequality within provinces, we find that it has a
positive effect on support for redistribution. In other words, as income inequality increases,
public support for redistribution also tends to increase.
Conclusions
Our main goal was to shed light on the broad range of incongruent findings identified in
preceding research on the relationship between income inequality and public opinion on
redistribution. Our findings suggest that the failure of cross-sectional analyses to consistently
identify the policy preference responsiveness mechanism suggested by the Meltzer-Richard
rational choice model can be explained by the presence of other unmeasured variations within
political contexts. As Kenworthy and McCall (2008) proposed, the effects anticipated by the
Meltzer-Richard model can only be isolated if cross-sectional institutional variation has been
controlled for. This finding is not only identified for both types of redistributive policies
considered in this analysis, but is also consistent with the results of two other longitudinal
analyses (Andersen and Curtis 2013; Meltzer and Richard 1983). Our cross-provincial results are
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also congruent with institutional theories which suggest that the Meltzer-Richards model does
not apply if we consider the relationship between inequality and attitudes cross-nationally.
Our finding that inequality has a positive effect on preferences for redistributive policies
within provinces clarifies the type of convergence that, given the lessons of institutional theory,
might be reasonably predicted by rational choice theory. Interest-based models need not
necessarily anticipate convergence between public opinions and policies across different
contexts, but rather a convergence towards one of a multiplicity of particular contextuallydependent ‘steady state’ equilibria in which public support for redistribution is balanced with a
given level of income inequality (Alesina and Angeletos 2005). Such a conceptualization
dovetails nicely with expectations derivable from Wlezien’s ‘thermostatic’ model of policy
preferences (Soroka and Wlezien 2004, 2005; Wlezien 1995, 1996, 2004). Publics’ social policy
outlooks in particular settings respond to exogenous shocks in their political economies and
changes in levels of policy present at given points in time.
The limitations of the present analysis suggest possible avenues for additional research.
First, future investigations could endeavor to replicate this analysis in order to determine
whether the core hypotheses hold with other data and in other settings. For example, the results
could be evaluated either cross-nationally or in other federal post-industrial democracies such as
Australia or the United States. Second, further research could attempt to trace out the microlevel causal mechanisms in order to provide a more robust evaluation of Meltzer and Richard’s
core theory. If these new analyses are able to include significantly many more cases at the
context level, and more measures at different times within them, a more extensive investigation
into other variables possibly responsible for the negative cross-national relationship could also
be considered.
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