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American Economic Review: Vol. 93 No. 1 (March 2003)

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The Survival of the Welfare State

Article Citation

Hassler, John, José V. Rodríguez Mora, Kjetil Storesletten, and Fabrizio Zilibotti. 2003. "The Survival of the Welfare State ." American Economic Review, 93(1): 87-112.

DOI: 10.1257/000282803321455179

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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Authors

Hassler, John
Rodríguez Mora, José V.
Storesletten, Kjetil
Zilibotti, Fabrizio


American Economic Review


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