Can the Structure of Inequality Explain Fiscal Redistribution? Revisiting the Social Affinity Hypothesis

Lupu and Pontusson (2011) argue that the structure of income inequality, rather than its level, can explain differences in fiscal redistribution across modern welfare states. Contrary to the assertion that there is robust evidence in support of this proposition, the present paper challenges the argument that the distribu-tional allegiances between social groups are a function of relative income differentials. It makes three central claims: (a) skew in the earnings distribution, the key explanatory variable in the empirical tests of the original paper, is a result of labor market institutions and hence endogenous to the welfare state; (b) relative earnings differentials are not a valid proxy measure for the structure of income inequality, the concept of theoretical interest; and (c) there is no indication that skew in the distribution of incomes (rather than earnings) is positively associated with fiscal redistribution. In sum, revisiting an influential contribution to the literature offers no support for the proposition that the structure of inequality has consequences for fiscal redistribution.