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Risk, Recession, and Declining Popular Demand for the Welfare State

Author

Listed:
  • Barnes, Lucy

    (University of Kent)

  • Hicks, Timothy

    (University College London)

Abstract

How do individual preferences over welfare spending respond to economic hard times? In this paper we reconcile two prominent, opposing expectations : that recessions lead to a `hunkering down' such that individuals become less favorable to taxation and expenditure; and that downturns, being associated with increases in risk, should lead to increased demand for government expenditure. We present a simple formal model rooted in the risk/insurance literature, to demonstrate that these two intuitions both capture important effects. While the labor market risk literature correctly predicts that individual-level insecurity increases support for welfare expenditure, our model shows that it also predicts that poor macroeconomic performance has the opposite e ect. The government budget constraint links the two levels, and we demonstrate that concern about budget balance is the mechanism driving declines in support for tax-and-spend. We test our argument using British individual-level panel data from before and during the Great Recession, and use Eurobarometer data from 32 countries to probe our de cit-based mechanism. The evidence is supportive of our claims on both counts.

Suggested Citation

  • Barnes, Lucy & Hicks, Timothy, 2015. "Risk, Recession, and Declining Popular Demand for the Welfare State," CAGE Online Working Paper Series 228, Competitive Advantage in the Global Economy (CAGE).
  • Handle: RePEc:cge:wacage:228
    as

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    File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/228-2015_barnes_troeger.pdf
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    References listed on IDEAS

    as
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