Is income redistribution a form of insurance, a public good or both?

This paper is an empirical study of what motivates net contributors to support redis- tributive policies. While studies in the area have tended to consider broad measures of inequality and support for redistribution, we focus on a single, salient relationship between local unemployment rates and demand for spending on unemployment benefits. Using a particularity of the Spanish labour market we estimate how workers’ stated preferences for unemployment benefits spending respond to changes in the local unemployment rate. We then decompose this response into the part explained by risk aversion, and thus demand for insurance, and the part explained by the public good nature of the redistribution. Our results suggest that increases in local unemployment rates lead to increased demand by workers for unemployment benefits spending. Moreover, our results are consistent with an insurance motive driving this relationship but provide little support for any public good component. Our results suggest that studies of the relationship between inequality and demand for redistribution might benefit from considering both the source and measure of the inequality and the instrument of redistribution.