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The survival of the welfare state


Hassler, John; Mora, José V Rodríguez; Storesletten, Kjetil; Zilibotti, Fabrizio (2003). The survival of the welfare state. American Economic Review, 93(1):87-112.

Abstract

This paper provides an analytical characterization of Markov perfect equilibria in a model with repeated voting, where agents vote over distortionary income redistribution. A key result is that the future constituency for redistributive policies depends positively on current redistribution, since this affects both private investments and the future distribution of voters. The model features multiple equilibria. In some equilibria, positive redistribution persists forever. In other equilibria, even a majority of beneficiaries of redistribution vote strategically so as to induce the end of the welfare state next period. Skill-biased technical change makes the survival of the welfare state less likely.

Abstract

This paper provides an analytical characterization of Markov perfect equilibria in a model with repeated voting, where agents vote over distortionary income redistribution. A key result is that the future constituency for redistributive policies depends positively on current redistribution, since this affects both private investments and the future distribution of voters. The model features multiple equilibria. In some equilibria, positive redistribution persists forever. In other equilibria, even a majority of beneficiaries of redistribution vote strategically so as to induce the end of the welfare state next period. Skill-biased technical change makes the survival of the welfare state less likely.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:March 2003
Deposited On:11 Feb 2008 12:29
Last Modified:05 Apr 2016 12:22
Publisher:American Economic Association
ISSN:0002-8282
Additional Information:Copyright: American Economic Association
Publisher DOI:https://doi.org/10.1257/000282803321455179
Official URL:http://www.atypon-link.com/AEAP/doi/pdf/10.1257/000282803321455179?cookieSet=1

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