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Risk aversion and inequity aversion in demand for unemployment benefits

Author

Listed:
  • Peter G. Backus

    (University of Manchester
    Institut d’Economia de Barcelona (IEB))

  • Alejandro Esteller-Moré

    (Institut d’Economia de Barcelona (IEB)
    Universitat de Barcelona)

Abstract

This paper is an empirical study of what motivates net contributors to support redistributive policies. While studies in the area have tended to consider broad measures of inequality and support for redistribution in general, we focus on a single, salient relationship between local unemployment rates and demand for spending on unemployment benefits. Using a particularity of the Spanish labour market, we estimate how workers’ stated preferences for unemployment benefits spending respond to changes in the local unemployment rate. We then decompose this response into the part explained by risk aversion, and thus demand for insurance, and the part explained by inequity aversion. Our results suggest that increases in local unemployment rates lead to increased demand by workers for unemployment benefits spending. Moreover, our results are consistent with an insurance motive driving this relationship but provide little support for inequity aversion. Our results suggest that studies of the relationship between inequality and demand for redistribution might benefit from considering both the source and measure of the inequality and the instrument of redistribution.

Suggested Citation

  • Peter G. Backus & Alejandro Esteller-Moré, 2017. "Risk aversion and inequity aversion in demand for unemployment benefits," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(2), pages 198-220, April.
    • Handle: RePEc:kap:itaxpf:v:24:y:2017:i:2:d:10.1007_s10797-016-9420-5
    DOI: 10.1007/s10797-016-9420-5
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    Cited by:

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    2. JaeYoul Shin, 2019. "How Can we Achieve a Sustainable Redistributive Policy? Rethinking the Relationship Between Civic Engagement, Neighborhood Relationship and Labor Market Status," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 142(1), pages 343-362, February.
    3. José M Durán‐Cabré & Alejandro Esteller‐Moré & Luca Salvadori, 2020. "Cyclical Tax Enforcement," Economic Inquiry, Western Economic Association International, vol. 58(4), pages 1874-1893, October.

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    More about this item

    Keywords

    Preferences for redistribution; Unemployment; Unemployment benefits;
    All these keywords.

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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