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On the political sustainability of redistributive social insurance systems

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Author Info

  • CASAMATTA, Georges

    (GREMAQ, University of Toulouse & CREPP, University of Liege)

  • CREMER, Helmuth

    (GREMAQ and IDEI, University of Toulouse and Institut Universitaire de France)

  • PESTIEAU, Pierre

    (CREPP, University of Liege, CORE & Delta)

Abstract

We consider social insurance schemes with a two-part benefit formula: a flat (constant) term and a variable term which is proportional to individuals' contributions. The factor of proportionality defines the type of social insurance. We adopt a two-stage political economy approach. At the first, constitutional stage, the type of social insurance is chosen "behind the veil of ignorance", according to the Rawlsian or the utilitarian criterion. At this stage, private insurance can also be prohibited or allowed. At the second stage, tax rate and benefit level are chosen by majority voting. Three main results emerge. First, it may be appropriate to adopt a system which is less redistributive than otherwise optimal, in order to ensure political support for an adequate level of coverage in the second stage. Second, supplementary private insurance may increase the welfare of the poor, even if it is effectively bought only by the rich. Third, the case for prohibiting (supplementary) private insurance may become stronger when the efficiency of private insurance markets increases.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1998038.

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Date of creation: 01 Jun 1998
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Handle: RePEc:cor:louvco:1998038

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  1. Epple, Dennis & Romano, Richard E, 1996. "Public Provision of Private Goods," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 57-84, February.
  2. Olivia S. Mitchell, 1996. "Administrative Costs in Public and Private Retirement Systems," NBER Working Papers 5734, National Bureau of Economic Research, Inc.
  3. GOUYETTE, Claudine & PESTIEAU, Pierre, . "Efficiency of the welfare state," CORE Discussion Papers RP -1427, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Cremer, Helmuth & Pestieau, Pierre, 1998. "Social insurance, majority voting and labor mobility," Journal of Public Economics, Elsevier, vol. 68(3), pages 397-420, June.
  5. John C. Harsanyi, 1953. "Cardinal Utility in Welfare Economics and in the Theory of Risk-taking," Journal of Political Economy, University of Chicago Press, vol. 61, pages 434.
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Cited by:
  1. DOCQUIER, Frédéric & PADDISON, Oliver, 2000. "Growth and equality effects of pension plans," CORE Discussion Papers 2000036, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Francisco M. Lagos & Juan Antonio Lacomba, 2001. "Election On Retirement Age," Working Papers. Serie AD 2001-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Karl Ove Moene & Michael Wallerstein, 2001. "Targeting and political support for welfare spending," Economics of Governance, Springer, vol. 2(1), pages 3-24, 03.
  4. Francisco M. Lagos & Juan Antonio Lacomba, 2000. "- Social Security And Political Election In Retirement Age," Working Papers. Serie AD 2000-11, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  5. Rainald Borck, 2007. "On the Choice of Public Pensions when Income and Life Expectancy Are Correlated," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(4), pages 711-725, 08.
  6. John Hall & Ian Preston, 1998. "Public and private choice in UK health insurance," IFS Working Papers W98/19, Institute for Fiscal Studies.

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