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The Welfare State in a Changing Environment

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Author Info
Thomas Eichner ()
Andreas Wagener ()

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Abstract

We analyse how the welfare state, i.e., social insurance that works through redistributive taxation, should respond to increases in risks and to increases in the cost of operating the welfare state. With respect to risks, we distinguish between risks that can be insured and such that cannot (background risks). Insurable risks can be reduced by costly individual self-insurance and by costly social insurance. We show: (i) Self-insurance will be higher the more costly is the welfare state and the larger are background or insured risks. (ii) Full social insurance can only be optimal in a costless welfare state. (iii) The optimal welfare state is not necessarily larger the less costly it is. (iv) The welfare state need not optimally expand when risks increase that it insures. (v) It should, however, expand when risks increase that it does not insure.

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Publisher Info
Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 11 (2004)
Issue (Month): 3 (05)
Pages: 313-331
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:kap:itaxpf:v:11:y:2004:i:3:p:313-331

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Web page: http://www.springerlink.com/link.asp?id=102915

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  1. Gollier, Christian & Pratt, John W, 1996. "Risk Vulnerability and the Tempering Effect of Background Risk," Econometrica, Econometric Society, vol. 64(5), pages 1109-23, September. [Downloadable!] (restricted)
  2. Wagener, Andreas, 2003. "Comparative statics under uncertainty: The case of mean-variance preferences," European Journal of Operational Research, Elsevier, vol. 151(1), pages 224-232, November. [Downloadable!] (restricted)
  3. Torben M. Andersen, 2003. "European integration and the welfare state," Journal of Population Economics, Springer, vol. 16(1), pages 1-19, 02. [Downloadable!] (restricted)
  4. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August. [Downloadable!] (restricted)
  5. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1994. "Income Risk, Borrowing Constraints and Portfolio Choice," CEPR Discussion Papers 888, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Luigi Guiso & Tullio Jappelli, 1998. "Background Uuncertainty and the Demand for Insurance against Insurable Risks," CSEF Working Papers 02, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
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  7. Sanjit Dhami, 2002. "Optimal Consumption Taxes and Social Security Under Tax Measurement Problems and Uncertainty," International Tax and Public Finance, Springer, vol. 9(6), pages 673-685, November. [Downloadable!] (restricted)
  8. Burgoon, Brian, 2001. "Globalization and Welfare Compensation: Disentangling the Ties that Bind," International Organization, Cambridge University Press, vol. 55(03), pages 509-551, August. [Downloadable!]
  9. Brian Burgoon, 2001. "Globalization and Welfare Compensation: Disentangling the Ties that Bind," International Organization, MIT Press, vol. 55(3), pages 509-551, September. [Downloadable!] (restricted)
  10. Hans-Werner Sinn, 2001. "The New Systems Competition," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  11. Gottschalk, Silke & Peters, Wolfgang, 2003. "Redistributive Taxation in the Era of Globalization," International Tax and Public Finance, Springer, vol. 10(4), pages 453-68, August. [Downloadable!] (restricted)
  12. Silke Gottschalk & Wolfgang Peters, 2003. "Redistributive Taxation in the Era of Globalization," Asia-Pacific Financial Markets, Springer, vol. 10(4), pages 453-468, August. [Downloadable!] (restricted)
  13. Sinn, Hans-Werner, 1995. " A Theory of the Welfare State," Scandinavian Journal of Economics, Blackwell Publishing, vol. 97(4), pages 495-526, December.
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  14. Mirrlees, J A, 1990. "Taxing Uncertain Incomes," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 34-45, January. [Downloadable!] (restricted)
  15. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October. [Downloadable!] (restricted)
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  16. Luisa Tibiletti, 1995. "Beneficial changes in random variables via copulas: An application to insurance," The Geneva Risk and Insurance Review, Palgrave Macmillan Journals, vol. 20(2), pages 191-202, December. [Downloadable!] (restricted)
  17. Bird, Edward J., 2001. "Does the welfare state induce risk-taking?," Journal of Public Economics, Elsevier, vol. 80(3), pages 357-383, June. [Downloadable!] (restricted)
  18. Cheng, Hsueh-Cheng & Magill, Michael J P & Shafer, Wayne J, 1987. "Some Results on Comparative Statics under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 493-507, June. [Downloadable!] (restricted)
  19. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-30, June. [Downloadable!] (restricted)
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