Preferences for social protection: Theory and empirics

Empirical cross-country evidence suggests that countries position themselves along a sort of Market Regulation (MR)-Social Expenditure (SE) trade-off “line”. Theoretically, it is clear that there exists a certain degree of substitutability between SE and MR, since both can provide a cushion against socio-economic risks. However, market regulation is an inefficient means to provide protection, since it might reduce productivity and the employment level. Still, to be politically viable efficiency-enhancing deregulation policies must come along with appropriate fiscal measures (social protection spending) to compensate the losers of reforms or to accommodate any temporary negative effect on aggregate demand. This implies that the political determinants of MR and SE should be jointly analyzed to explain both the multiplicity of stable combinations of MR and SE empirically observed, and the strong political resistance often encountered in the implementation of structural reforms. The focus of this paper is a theoretical and empirical (using microdata from the International Social Survey Programme (ISSP)) investigation on the socio-economic, institutional and cultural factors which shape voters' preferences for MR and SE and determine the relative salience of the two political issues. Such an analysis should provide fundamental pieces of information to carry out a proper analysis of the political process to give account of the multiplicity of combinations of MR and SE empirically observed.