Welfare Policy Configurations, Redistribution and Income Inequality in Post-Industrial Democracies

In comparative research on income inequality, the distributional effects of social, tax and labor market policies are often studied separately under the assumption that specific policies are independent of other welfare policies in place. As a consequence, we know little about the combined impact, the synergies and trade-offs of welfare policies with regard to their redistributive effects. What are the combined effects of social, tax and labor market policies on redistribution and income inequality?

In our study, we question the assumption that welfare policies have isolated distributional effects independent of other welfare policies in place. We therefore use a configurational approach to look at combinations of tax-transfer and labor market policies, and the consequences of changes in policy configurations for the income distribution. Theoretically, we distinguish policies that operate foremost through their effects on labor market opportunities and market income distribution (labor market policies or education), and tax-benefit policies that involve ex-post redistribution of incomes.

Our empirical analysis compares 36 democracies between 1975 and 2015. We collect unique measures for welfare policy configurations involving six policy sub-groups of tax-transfer and labor market policies. The policy change measures are based on a new database on liberalization. The analysis further assesses whether welfare policy configurations are associated with changes in redistribution and income inequality, and whether the distributional effects of policy changes are conditional on other policies in place in the welfare policy configuration. The statistical analysis is based on aggregated data from income surveys (LIS/EU-SILC), using TSCS regression methods.