The Survival of the Welfare State
- (pp. 87-112)
AbstractThis 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.
CitationHassler, 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
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- P16 Capitalist Systems: Political Economy
- E62 Fiscal Policy
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies