How are public preferences related to existing policy models? This article explores this question around two areas, namely unemployment benefits and income taxes - and concludes that support for certain forms of contribution (and rejection of others) do not follow a single pattern, but vary according to policy issues.
Income targeting in policy debates
Who should get what in the welfare state? The age-old question of whether to target specific groups or to cast a universal net continues to ignite passionate debates. It’s a dilemma as old as the welfare state itself and continues to be relevant, given the ever-changing needs in European welfare states.
Let’s break down the three general principles underpinning the debate.
First, there’s the principle of need. This would imply that welfare provision should hone in on those with lower incomes. Picture means-tested programs that are paid only to the poor, usually funded by progressive income taxes.
Second, the principle of reciprocity: welfare provision should lean towards those that have contributed to the system. The major example being insurance-based programs that pay out benefits based on the level of prior contributions or earnings when a social risk occurs. But also in tax systems with specific tax exemptions or rebates that disproportionally benefit higher-income earners.
Finally, the principle of universalism: people’s income should not determine what they get out of, or pay into, the welfare system. Instead, everyone should be treated equally through universal policies. Typical examples hereof are categorical universal schemes such as people’s pensions and proposals for a universal basic income that is to be paid to all without any conditions.
Most contemporary welfare states include policies grafted on a mix of these principles. But what do people prefer? Since policy measures, and future policy reforms, need sufficient public support, it is an important question how citizens regard these principles in their attitudes toward social policies. We present the results of a study investigating Europeans’ preferences regarding income targeting and how these preferences are related to the actual targeting policies they are exposed to in their respective countries. “Income targeting” refers here to both the direction of targeting, towards lower or higher income groups, and its degree, making large or small distinctions between income groups. We asked participants about two oft-debated policy domains: unemployment benefits and income taxes.
Income targeting in public opinion
To measure popular preferences about income targeting, we used data from the European Social Survey, a well-established general population survey that is conducted biennially across a wide range of European countries. More specifically, we analyzed two items included in Round 4, which was gathered in 2008/09 among 56.752 respondents living in 31 different European countries. The results indicate that there is sizable variation across countries regarding popular targeting preferences.
With regard to unemployment provision, the top panel in Figure 1 shows that in most European countries, equal benefits for higher and lower earners is the most preferred policy option. This is especially the case in countries such as Croatia (80%), Denmark (78%), Ireland (73%), the United Kingdom (72%), Greece (71%), Estonia (69%), Poland (67%) and Belgium (62%). By contrast, in a number of other countries –including Portugal (62%), Germany (59%), Spain (57%), Latvia (51%) and Slovakia (50%)– the most popular choice is to grant higher benefits to higher earners. Giving higher unemployment benefits to lower earners is generally least popular, except in Turkey (39%), Hungary (24%), Slovenia (20%) and Greece (20%), where it is (joint) second choice.
With regard to income taxation, the bottom panel in Figure 1 shows that in all countries, most citizens either favor a progressive tax system or a proportional system. In 17 out of 29 countries, a progressive system is preferred over a proportional one (with a difference of at least five percentage points). The preference for progressive over proportional taxation is most outspoken in Israel (+51.3%) and Ireland (+39%). By contrast, in Latvia (+6%), France (+8%), and especially Croatia (+16%) and Portugal (+21%), a proportional tax is preferred over a progressive one. In a number of other countries, such as Germany, Romania and Slovakia, there is hardly any difference in support for a progressive and a proportional tax (difference is less than five percentage points). A poll tax, in which higher and lower earners pay the same amount of money (‘high-income targeting’), is clearly least popular. In most countries, it is a rather marginal choice, with percentages below 10%. Acceptance of a poll tax is highest in the United Kingdom (12%), Estonia (11.5%) and Denmark (11%).
Figure 1. Targeting preferences for unemployment benefits and income tax, per country
Income targeting and policy feedback
Now that it is clear that there is cross-national variation in popular targeting preferences, the question remains: how can this variation be explained?
According to policy feedback theory, at least part of the answer lies with the actual targeting policies people are exposed to in their country. Most scholars argue that such policy feedback mainly works in a positive, self-reinforcing way: the more a welfare policy is pursued, the more likely citizens are to endorse it. From this perspective, one would expect to see that the more unemployment benefits and income taxes are targeted at lower (or higher) incomes, the more citizens will support low-income (or high-income) targeting in these policy domains.
At the same time, however, it is increasingly recognized that feedback effects may just as well operate in a negative, self-undermining way. In such a scenario, citizens are more likely to react against a welfare policy the more it is pursued, presumably because they dislike that policy in the first place. Accordingly, it seems equally plausible that the more unemployment benefits and income taxes are targeted at lower (or higher) incomes, the less citizens will support low-income (or high-income) targeting in these domains.
Moreover, we argue that there is another question to address: are these targeting preferences mostly influenced by the de jureinstitutional design of welfare policies or their de facto outcomes? This question is important because there is ample evidence that policy outcomes ‘on the ground’ often deviate from policy designs ‘on paper’, because they are also influenced by external factors such as population composition and take-up rates. Imagine, for example, an unemployment benefit that is organized as a typical social insurance in which higher wages prior to unemployment give rise to higher benefits. Although the policy intention is to benefit higher incomes more, the outcome will be very different if the unemployed population consists predominantly of low-skilled workers with a low income or if high-income earners do not take up the benefit because they fear the stigma that comes with it. In such a scenario, the outcome will actually be targeted towards low-income categories.
This important insight has, however, not been given the attention it deserves in the social policy feedback literature, which continues to rely heavily on policy indicators that are unable to separate de jure designs from de facto outcomes. In our study, we look deeper into the relative impact of targeting indicators that are constructed to distinguish between designs and outcomes in a multilevel analysis (i.e., concentration coefficients calculated on the OECD Benefits and Wages Model and EU-SILC, respectively). Whether targeting preferences are affected more by designs or outcomes appears to vary between the two policy domains we examine.
In the case of unemployment benefits, the results suggest positive feedback: support for high-income targeting increases when unemployment benefits are designed to benefit those with previously higher incomes. For income taxation, by contrast, the results suggest negative feedback. In that case, it is not so much the de jure design but rather the de facto outcome that matters: the more taxes effectively work to the advantage of higher-income earners, the less support there is for a tax that levies the same amount on everyone, regardless of income. These findings indicate that targeting preferences and targeting policies are empirically related, but that the nature of that relationship varies between policy domains rather than being universal.
This article presents key arguments and findings from our paper Policy feedback and income targeting in the welfare state, published in the Journal of social Policy on November 30th, 2023