Borrowing Welfare: Income Inequality and the Varying Effects of Credit Access on Preferences for Redistribution

Recent elections in Europe and the US have shown that growing income inequality is not necessarily countered by further demand for redistributive policies, a finding that stands in stark contrast to rational-choice assumptions. The puzzling empirical observation has deepened academic interest in the drivers of redistributive demands. Previous research provides evidence that governments in Europe facilitated access to consumer credit to substitute for fiscally costly welfare policies; it is, however, not clear whether voters accept credit as a perfect substitute for welfare policies. In other words, previous research has considered supply-side arguments, but has seldom explored the demand side of credit as a substitute for welfare.

We argue that voters do not always see credit as a substitute for welfare. To make this case, we consider data from five waves of the European Social Survey (2002-2010) for seventeen European countries. The time span that we consider mostly includes years that preceded the Great Recession 2007–2008, when consumer credit expanded rapidly in these countries, and some years in the aftermath of this crisis, when consumer credit was severely curtailed. In a multilevel model where survey respondents are nested within countries and years, we do find evidence that expanded credit access attenuates demands for redistribution, but we also see that the size of this effect varies considerably. Furthermore, we find that in contexts of high inequality, credit is not accepted as a replacement for welfare state policies, a finding more in line with rationalistic accounts of preference formation.