Redistribution and Different Social Programmes

Redistributive goals vary among the different types of social programmes. Social assistance programmes aim to reduce poverty and inequality by targeting poor or disadvantaged groups by applying income or means-tests. Since funding for the programmes comes from general taxation paid by the whole population, these programmes are thought of as being explicitly redistributive, usually viewed as foremost seeking vertical redistribution, since their logic is that wealthy taxpayers who do not receive benefits fund the benefits and services provided to the poor who may contribute less or not contribute at all because of their condition of poverty (Beland, 2010, Dean, 2012). Nonetheless, horizontal redistribution based on need or aimed at offsetting inequalities generated by other sources than income can occur by targeting specific groups of society, e.g. family allowances for lone mothers.

Social insurance programmes have as their primary aim to maintain income levels throughout people’s lives (Palier, 2010), hence are seen as seeking foremost redistribution across the life cycle of the individual. These programmes operate in similar way to a savings account, where by contributing to a fund during their active working years, people can protect themselves against certain risks and receive benefits when required, like in old-age when a pension would be granted or during unemployment spells. However, social insurance is also about risk pooling and depending on their design, these programmes can also contain strong vertical and horizontal redistributive elements (Dean, 2012, Beland, 2010). Examples of vertical redistribution can be found in the design of the structure of contributions. Social insurance contributions may be set progressively so that high income workers contribute a larger share of their wages. Another example can be found in pension systems, where pensions are paid from the resources pooled together by active workers and low income workers may eventually receive more than what they contribute. An example of redistribution on the basis of needs can be the provision of health insurance and health care or cash benefits to people that are ill.

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Universal programmes are usually not associated with vertical redistribution, since income is not a variable to establish eligibility or benefit levels and all citizens or residents in a group would tend to receive similar benefit levels. These programmes are usually justified in terms of the promotion of social solidarity, the avoidance of creating disincentives to work or increase income because of the loss of eligibility as in social assistance, or efficiency concerns since even if spending may be higher at the end it could result more expensive to apply income or assets tests like in social assistance programmes. Nonetheless, horizontal redistribution towards specific socio-demographic groups or based on needs does occur, as in the case of universal old-age pensions or healthcare systems (Gilbert, 2002, Beland, 2010), apart from the fact that eventually these programmes can lead to higher levels of redistributions than other types which are explicitly redistributive, as the next section explains.

On the redistributive potential of social assistance programmes, Dean (2012) points out that even if the principal aims of these programmes are to fight poverty and inequality, such outcomes might not be achieved if benefit levels are too low or the tax system is not sufficiently progressive. Hence social policy systems of the liberal type which are based on social assistance might actually have a low redistributive potential and eventually a limited impact on reducing poverty and inequality . Beland (2010) comments on the risk that middle and high income groups show reluctance on paying taxes to fund social programmes that benefit the poor, especially depending on whether the beneficiaries are judged as being ‘deserving´ or ‘undeserving’ poor. This risk might make social assistance programmes politically vulnerable and compromise their funding. Korpi and Palme (1998) carried out seminal research on this topic.

Korpi and Palme (1998) studied the relation between the institutional design of welfare states and their redistributive potential and outcomes. Based on empirical work carried out on mature welfare states, they concluded that, contrary to the objectives explicitly sought, social policy systems based on targeted social assistance programmes with means-tested flat-rate benefits, actually had a lower impact on reducing poverty and inequality levels than other types of systems. The reasons found by the authors for such outcomes were that the overall levels of social spending in each country depended on the institutional design of the social policy system and that an inverse relation existed between the degree of targeting used by welfare states and the levels of social spending. In other words, the more a country used targeted benefits the less that

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country spent in total on social policy. The authors finally found that the countries that were basing their welfare state on targeted social assistance programmes and hence presented lower levels of social spending, had a worse record in reducing poverty and inequality. The reason was that redistribution was ultimately left to market arrangements which tend to be highly unequal. This phenomenon was called ´the paradox of redistribution’, because the more benefits are targeted at the poor and the more there is a concern with creating equality via public transfers to all, the less likely significant reductions of poverty and inequality will be achieved.

On the other hand, the authors found that welfare states based on social insurance programmes with earnings-related benefits had a better record in reducing poverty and inequality. This was especially true for countries with integrated insurance programmes and less for corporatist welfare states that have different occupational schemes, since in the latter the systems end up highlighting socioeconomic distinctions and generating divergent interests. Earnings-related benefits made the system attractive to middle-class citizens, who would feel compelled to accept higher levels of taxation and contribute to fund it because they would also be benefited, hence increasing the resources available for further redistribution. The opposite was the case of targeted means-tested programmes which incentivised the exit of the middle classes and pushed them to purchase welfare protection in the private sector.

Hence, it is the type of institutional structure of the welfare state, Korpi and Palme (1998) argued, one of the main factors that explain redistributive outcomes. Welfare states with predominant social assistance programmes end up entrenching divisions in society by deepening the cleavages between the poor who the system targets, and other social classes who largely pay for the taxes and contributions to fund it. This in turn hinders the formation of cross-class redistributive coalitions to demand an expansion of the welfare state with services and benefits of better quality and higher amounts. On the contrary, welfare states with universalistic features that cover all citizens in the same programmes foster coalition formation, creating a broad support base for social policies and resulting in an increase in the resources available for redistribution. The authors do acknowledge that other factors such as political traditions, demographic composition and industrial structures also have an impact on redistributive outcomes, but they suggest that institutional design is the or one of the principal ones.

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