Former American President Barack Obama declared inequality “the defining challenge of our time.” Meanwhile, levels of inequality around the developed world have been on the rise. Unsurprisingly, rising levels of inequality have not gone unnoticed by academic researchers. Renowned economists such as Thomas Picketty have become household names with their work on this topic. However, this line of academic inquiry is not new. Quite the opposite, inequality has been a subject of academic research for a long time.
An interesting article on the topic of inequality is Korpi et al's (1998) research paper, which investigates the impact of the share of government benefits to low-income groups on societal inequality. The paper concludes that where a smaller share of government benefits reaches those most in need, social welfare is less likely to reduce inequality. Albeit surprising, their conclusion begins to make more intuitive sense once their argument is fully understood. Essentially, they argue that receiving government benefits fosters an affinity for those benefits. Therefore, when a political party credibly promises to provide benefits to the lower and middle class (or has already done so), both groups are likely to support that party. When this occurs, the combined political will of both classes is more likely to bring the pro-redistribution parties into power.
They theorize that social programs that exclude the middle class tend to be unpopular and less politically viable. Korpi and Palme argue that when the “poverty line splits the working class and tends to generate coalitions between better-off workers and the middle class against the lower sections of the working class” this “can result in tax revolts and (a) backlash against the welfare state.”
They go on to argue that programs that benefit a broader swath of the population enjoy greater and longer-lasting political support. As noted in their study, the participation of the middle class in social welfare programs “tends to encourage coalition formation between the working class and the middle class in support of continued welfare state policies. The poor need not stand alone." Based on this line of reasoning, a tradeoff exists between the extent to which a program targets those who need it the most and the overall popularity and generosity of the program. According to their findings, it is the latter that wins out over the long run. Where countries adopt universal social programs that benefit the middle class, welfare regimes have a greater impact on inequality.
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