Let Them Eat Credit: Income Inequality and Economic Voting in Advanced Economies

• In Event: Inequality and Democracy

Abstract

There is increasing recognition that voters might be sensitive to a country’s income distribution—sensitive enough to consider the state of income inequality when evaluating the performance of their politicians. Indeed, opinion polls document that more and more individuals view growing inequality as a matter that deserves corrective actions by the government.
While the literature linking income inequality and voting outcomes are growing (Amri and Bouvet 2022, Dassonneville 2020), results are not quite conclusive. Amri and Bouvet found that income inequality is only a salient electoral issue in countries with a significant degree of media freedom. Bouvet and King (2016) found that only left-wing parties are held accountable for rising income inequality, while Dassonneville & Lewis-Beck (2020) did not find a significant difference between the electoral performance of left and right-wing incumbents in a time of rising income inequality.
One important yet under-explored factor that conditions the relationship between income inequality and incumbent vote share is the amount of bank credit available to the voter-household. This seems surprising given a large number of studies which found that rising income inequality has resulted in increased financial sector credit and that governments and government-owned banks have been important players in ramping up this type of consumer credit (Ahlquist and Ansell 2017, Bircan and Saka 2021, Kern and Amri 2021). Anecdotal evidence from recent elections in Brazil, Hungary and Indonesia show that promising easy access to credit (housing credit in particular) is increasingly used by politicians of all ideological stripes. In a multi-country study, Muller (2023) found that policies regulating mortgage and consumer credit are significantly less restrictive ahead of elections.
Given the above, I argue that voters are less inclined to express any concerns about income disparities at the ballot box if they have been compensated through easier access to credit that allows them to finance their consumption, even as income inequality rises. Under the premise that this strategy works better when countries have well-developed credit instruments in the first place, I further test whether these strategies of mobilizing votes via easy access to credit are more effective in countries with more well-developed housing and consumer credit policies. I support this argument with a cross-country time-series study of national legislative elections in 28 advanced democracies from 1981-2020, leveraging OECD data sets documenting variations in mortgage and credit policies across different advanced economies.

Author

• Puspa D Amri, Sonoma State University