Equilibrium social insurance with policy-motivated parties
AbstractWe study the political economy of social insurance with voters' heterogeneity on two dimensions: income and risk levels. Individuals vote over the extent of social insurance, which they can complement on the private market. We model political competition Ã la Wittman, with two parties maximizing the utility of their members. We obtain equilibrium policy differentiation with the Left party proposing more social insurance than the Right party. The Right party attracts the less risky and richer individuals, and the Left party attracts the more risky and poorer individuals. In equilibrium, each party is tying for winning. Unlike the median voter outcome, our equilibrium outcome depends on the whole income and risk distribution. Conditional on the risk distribution, more income inequality does not necessarily lead to higher demand for social insurance. In fact we find that more income polarization leads both parties to propose less social insurance. We also contrast our political equilibrium with the Rawlsian and utilitarian outcomes. Finally, we provide in the Appendix a first try at calibrating the model with real data, using U.S. data from the PSID survey.
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Bibliographic InfoArticle provided by Elsevier in its journal European Journal of Political Economy.
Volume (Year): 23 (2007)
Issue (Month): 3 (September)
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Web page: http://www.elsevier.com/locate/inca/505544
Other versions of this item:
- DE DONDER, Philippe & HINDRIKS, Jean, 2006. "Equilibrium social insurance with policy-motivated parties," CORE Discussion Papers 2006033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Philippe, DE DONDER & Jean, HINDRIKS, 2006. "Equilibrium Social Insurance with Policy-Motivated Parties," Discussion Papers (ECON - DÃ©partement des Sciences Economiques) 2006018, Université catholique de Louvain, Département des Sciences Economiques.
- Philippe De Donder & Jean Hindriks, 2007. "Equilibrium social insurance with policy-motivated parties," Working Papers 13446, Institut National de la Recherche Agronomique, France.
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
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