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The Survival of the Welfare State

The Survival of the Welfare State
The Survival of the Welfare State
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.
87-112
Hassler, John
4342a8e4-be19-467d-903b-b392d86bc5e6
Rodriguez Mora, José V.
37b4fabc-8a25-401a-aee8-8a6924b85b21
Storesletten, Kjetil
32040f20-7f88-45e1-b04f-9ec6667f7f3d
Zilibotti, Fabrizio
4e5e129e-cb11-4b09-8ba4-ce400e638712
Hassler, John
4342a8e4-be19-467d-903b-b392d86bc5e6
Rodriguez Mora, José V.
37b4fabc-8a25-401a-aee8-8a6924b85b21
Storesletten, Kjetil
32040f20-7f88-45e1-b04f-9ec6667f7f3d
Zilibotti, Fabrizio
4e5e129e-cb11-4b09-8ba4-ce400e638712

Hassler, John, Rodriguez Mora, José V., Storesletten, Kjetil and Zilibotti, Fabrizio (2003) The Survival of the Welfare State. American Economic Review, 93 (1), 87-112. (doi:10.1257/000282803321455179).

Record type: Article

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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Published date: 2003

Identifiers

Local EPrints ID: 39706
URI: https://eprints.soton.ac.uk/id/eprint/39706
PURE UUID: c144288b-03d9-4f56-a818-d75dba68493f

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Date deposited: 29 Jun 2006
Last modified: 17 Jul 2017 15:35

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Contributors

Author: John Hassler
Author: José V. Rodriguez Mora
Author: Kjetil Storesletten
Author: Fabrizio Zilibotti

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