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Income Inequality and Populism

by Lukas F. Stoetzer

№ 33/2021 from May 18, 2021

Lukas F. Stoetzer

Most democratic societies have experienced a rapid increase in income inequality over the last decades. Across OECD countries, the average share of disposable income earned by the top 10% has increased and is about 9.3 times higher than the income of the bottom 10%. Income inequality has probably further increased during the COVID pandemic, as the recent Datenreport 2021 documents for Germany suggest. What does this unequal allocation of economic resources imply for liberal democracies?

Income Inequality

Income Inequality
Image Credit: mSeattle (Flickr)

In the last couple of decades, liberal democracies have found themselves contested by populist parties. These parties separate society into two homogeneous groups—“the pure people” versus “the corrupt elite”—and aim to implement the general will of the people irrespective of the existing liberal democratic institutions. While mainstream parties suffer dramatic electoral losses, right-wing and left-wing populist parties are on the rise all over Europe. More than one in four cast their vote for an authoritarian populist party last time they voted in a national election.

Is there a connection between the rising inequality levels and support for populist parties? The public discourse sees rising economic inequalities as one likely root of populism. In a recent interview of Michael Zürn, the Director of SCRIPTS, he summarised that “the cultural division of society and growing inequality form a background that serves the rise of these authoritarian populists”. Scholarly articles further reveal that raising inequalities can go hand in hand with support for authoritarian populist parties.

But how does this chain of events work? Inequality can only be understood on the macro-level when comparing the distribution of income in the population. Support for populist parties is an individual decision. Why should a German voter be more likely to support a populist party when the top 10% earn 30% of the net income as opposed to 22% that they otherwise would? Arguments that try to connect the two concepts need to outline how macroeconomic conditions influence voting decisions. The literature proposes a set of channels to explain how increasing inequality can lead to support for populist parties.

One of the most prominent arguments is that income inequality leads to economic risks and insecurities. Part of this is almost mechanical, as with increasing inequality the share of people who earn relatively little increases. However, the argument is that, next to the actual income, what especially matters is the perceived economic insecurity. People that have fallen behind or that fear to do so are more willing to turn their backs to mainstream politics and embrace populist parties’ offer to put their interests first. The relationship between economic insecurity and support for authoritarian populist parties is well-established, but it can just as well matter for left-wing populist parties that offer strong redistributive platforms.

Another related mechanism sees the importance of trust in political elites. Raising inequality levels can distort the trust in representatives from mainstream parties—either because voters directly observe the unequal outcomes and question the integrity of the political elites, or because they experience the increasing economic risks and hold mainstream parties responsible for it. Trust in political elites could then explain the attraction of both left-leaning and right-wing populist parties.

The debate about the roots of populism distinguishes between cultural and economic explanations. Inequality is often described as a pure economic cause. This is not necessarily true, as rising inequality can also have cultural consequences. According to another argument, rising income inequality leads to social stratification and social marginalization. Voters that feel marginalized are receptive to the populist rhetoric blaming the elites for not representing the “true people”, making them more likely to support populist parties. Similarly, rising inequality levels can also affect identities—another cornerstone of proponents of the cultural explanations. The argument presupposes that unequal incomes make it more attractive for low-income voters to identify with the nation-state, compared to the working class, and hence can draw people towards authoritarian right-wing populist parties.

Which of the mechanisms is empirically valid? This is tricky to evaluate based on the tendencies that the vote share of populist parties and inequality are rising in different countries. In a recent working paper, we turn to individual data from the European Social Survey to present a first comprehensive test of the four mechanisms. Interestingly, we find no clear evidence that any of the four mechanisms sufficiently explains the relationship between higher inequality levels and support for populist parties. Trust in political elites and economic insecurities are both influenced by income inequalities, and they affect support for populist parties, causing a potential chain of events. However, for two voters with similar levels of trust in elites and who face similar economic insecurities, we still estimate that the voter that lives in a country with higher income inequality is more likely to support populist parties. Hence, the two consequences are insufficient to explain the effect of inequality on support for populism.

For us, this leaves a big question mark as to how exactly inequality leads to populism. Without a clear understanding of the sequences of causes, it is difficult to design effective interventions. It is unclear how policies can balance the negative consequences for liberal democracies. Will voters not turn to populist parties if they live in strong welfare states that secure against economic risks from rising inequality? Do transparency laws break the link between unequal economic outcomes and reduction in trust in elites? The finding calls for further research done in the SCRIPTS cluster to understand the relationship between the allocation of resources and the actors that bring about contestation of the liberal scripts.

Lukas F. Stoetzer is a Post-Doc at the SCRIPTS Excellence Cluster in the Project on "Social Inequalities, Migration and the Rise of Populist Parties". Before joining the Cluster he worked at the University Zurich, Massachusetts Institute of Technology, and the University of Mannheim. His research interests lay in political behavior and quantitative political methodology.