Middle Class Without a Net: Savings, Financial Fragility, and Preferences Over Social Insurance

In this article, we show that it is crucial to distinguish between liquid and illiquid wealth to understand how voters form preferences toward social insurance. Many households are financially fragile despite having high incomes and wealth, because they hold little liquid savings. We hypothesize, and show empirically, that this implies that a substantial group of voters show strong support for social insurance policies despite being wealthy and having high incomes, because of their limited ability to self-insure through own savings in case of an income shock. Our empirical analysis is based on a novel dataset from Denmark, which combines administrative data with high-quality measures of individual financial assets and survey measures of political preferences. Using data for other countries from the European Social Survey, we find evidence that our results hold more generally and are not specific to the Danish context.