University of San Andrés (Argentina) – Inequities in Subsidy Policies and Public Policy

The differentiated removal of subsidies carried out by the current economic administration of Sergio Massa is important for many aspects. For example, because it impacts the sustainability of the fiscal program or because it gives us some idea of ​​the internal balances in the ruling coalition. It is also important because it affects the relationship between citizens and the State: especially those who pay taxes on their assets and income and have the perception of receiving little in return.
The Argentine State, according to recent estimates by Nora Lustig (CEQ/Tulane), is strongly redistributive. It transfers resources from the richest to the poorest, but it does so at a very high fiscal cost. In fact, Lustig shows that it is the most redistributive. but also one of the most inefficient in Latin America. Therefore, understanding the support or disagreement that state intervention in the economy arouses among those who pay part of state spending, including government social policy, is of vital importance.
Motivated by this concern, in 2012 we investigated, together with Luis Schiumerini and Susan Stokes (professors at the universities of Notre Dame and Chicago, respectively) the effect of the removal of subsidies – the “redistributive adjustment” led by then minister Boudou and the President Cristina Kirchner – in some areas of the City. As now with the water subsidies, the Government selected some areas so that they would lose state aid. Although the haircut that was carried out was monetarily important (the newspapers reported increases of more than 500%), given the small number of households to which the haircut was applied, the fiscal savings that were achieved were insignificant.
In our study, published in the British Journal of Political Science, we interviewed people who lived less than three blocks from the haircut limit by telephone, and randomly assigned them different experimental questionnaires that emphasized different aspects of the haircut policy.
Neither material interests, nor altruism or solidarity due to the redistributive effects of the policy, nor empathy (of those who kept the subsidies towards those who lost them) explain the opposition or support of the people interviewed for the policy of cutting income. subsidies, or state intervention more generally.
In fact, we found that many of these porteños, residents of the neighborhoods with the highest purchasing power in the country, expressed attitudes favorable to redistribution and the removal of subsidies, even among those who had lost them.
However, this support collapsed when they remembered that the removal generated inequities between people of the same social class – for example, between neighbors living on one side or the other of the limit of a removal zone. This phenomenon, previously identified in social psychology studies (conducted in laboratories), is known as disadvantageous inequity aversion.
Given the high rates of income inequality in Latin America and the growing inequality in advanced democracies, it is necessary to understand how support for redistribution can be cultivated among those who pay for it. Although it affects them materially, there are many high-income people who express favorable opinions about social, labor and tax policies that benefit those who have less.
But this support quickly deteriorates when policies produce inequities between people who are perceived to be equal – a usual phenomenon in our political system, where many benefit from “VIP” policies, for example when judges do not pay taxes on income or some people use their political influence to avoid tax obligations.
If governments want to increase people’s support (or reduce resistance) to cutting subsidies and redistribution in general, they would do well to avoid these kinds of inequities, or at least not fuel the perception that these inequities exist.