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Positive Arithmetic of the Welfare State

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Author Info
Conde-Ruiz, José Ignacio
Galasso, Vincenzo

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Abstract

Why does the largest US welfare programme select its recipients by their age, rather than by their earnings or wealth? In a dynamic efficient overlapping generation economy with earnings heterogeneity, we analyze a welfare system composed of a within-cohort redistribution scheme and an unfunded social security system. The programme's size is determined in a bidimensional majoritarian election. For enough income inequality and elderly in the population, both welfare programs are supported as a structure-induced political equilibrium of a voting game played by successive generation of voters. Social security is sustained by a voting coalition of retirees and low-income young, intragenerational redistribution by low-income young. Two features are crucial: the retirees' political power, deriving from their homogeneous voting, and the intragenerational redistribution component of the social security. Therefore, to assess how changes in inequality affect the welfare state, the income distribution should be decomposed by age groups.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2202.

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Date of creation: Aug 1999
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Handle: RePEc:cpr:ceprdp:2202

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Related research
Keywords: Income Equality; Social Security; Structure-Induced Equilibrium;

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Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Azariadis, Costas & Galasso, Vincenzo, 2002. "Fiscal Constitutions," Journal of Economic Theory, Elsevier, vol. 103(2), pages 255-281, April. [Downloadable!] (restricted)
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    Other versions:
  3. Marco Bassetto, 1999. "Political economy of taxation in an overlapping-generations economy," Discussion Paper / Institute for Empirical Macroeconomics 133, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  4. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December. [Downloadable!] (restricted)
  5. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 135-160, February. [Downloadable!] (restricted)
  6. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2001. "The Survival of the Welfare State," Economics Working Papers 603, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  7. Vincenzo Galasso, 1999. "The US Social Security System: What Does Political Sustainability Imply?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 698-730, July. [Downloadable!] (restricted)
  8. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1997. "Politico-economic equilibrium and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 243-272, January. [Downloadable!] (restricted)
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  10. Michele Boldrin & Aldo Rustichini, 2000. "Political Equilibria with Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 41-78, January. [Downloadable!] (restricted)
  11. David Miles, 1997. "Financial markets, ageing and social welfare," Fiscal Studies, Institute for Fiscal Studies, vol. 18(2), pages 161-187, May. [Downloadable!]
  12. Breyer, Friedrich & Craig, Ben, 1997. "Voting on social security: Evidence from OECD countries," European Journal of Political Economy, Elsevier, vol. 13(4), pages 705-724, December. [Downloadable!] (restricted)
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  13. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
  14. Javier Díaz-Giménez & Vincenzo Quadrini & José-Víctor Ríos-Rull, 1997. "Dimensions of inequality: facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-21. [Downloadable!]
  15. Galasso, Vincenzo, 2000. "The US Social Security: A Financial Appraisal For The Median Voter," CEPR Discussion Papers 2456, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  16. Lindert, Peter H., 1996. "What Limits Social Spending?," Explorations in Economic History, Elsevier, vol. 33(1), pages 1-34, January. [Downloadable!] (restricted)
  17. Grossman, Gene M & Helpman, Elhanan, 1998. "Intergenerational Redistribution with Short-Lived Governments," Economic Journal, Royal Economic Society, vol. 108(450), pages 1299-1329, September. [Downloadable!] (restricted)
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  18. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," World Bank Economic Review, Oxford University Press, vol. 10(3), pages 565-91, September.
  19. Galasso, Vincenzo & Profeta, Paola, 2002. "The political economy of social security: a survey," European Journal of Political Economy, Elsevier, vol. 18(1), pages 1-29, March. [Downloadable!] (restricted)
  20. Romer, Thomas, 1975. "Individual welfare, majority voting, and the properties of a linear income tax," Journal of Public Economics, Elsevier, vol. 4(2), pages 163-185, February. [Downloadable!] (restricted)
  21. Tabellini, Guido, 2000. " A Positive Theory of Social Security," Scandinavian Journal of Economics, Blackwell Publishing, vol. 102(3), pages 523-45, June. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Tito Boeri & J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "Cross-skill Redistribution and the Tradeoff between Unemployment Benefits and Employment Protection," Working Papers 2004-26, FEDEA. [Downloadable!]
    Other versions:
  2. Conde-Ruiz, José Ignacio & Galasso, Vincenzo, 2003. "The Macroeconomics of Early Retirement," CEPR Discussion Papers 3896, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Tito Boeri & J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "Protecting Against Labour Market Risk: Employment Protection or Unemployment Benefits?," Working Papers 2003-17, FEDEA. [Downloadable!]
    Other versions:
  4. J. Ignacio Conde-Ruiz & Paola Profeta, 2007. "The Redistributive Design of Social Security Systems," Working Papers 2007-07, FEDEA. [Downloadable!]
    Other versions:
  5. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2000. "The Political Economy of Social Security," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Hans Fehr & Christian Habermann, 2005. "Risk Sharing and Efficiency Implications of Progressive Pension Arrangements," DNB Working Papers 064, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  7. Michael Kaganovich & Volker Meier, 2008. "Social Security Systems, Human Capital, and Growth in a Small Open Economy," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  8. Tito Boeri & J. Ignacio Conde-Ruiz & Vincenzo Galasso, 2006. "The Political Economy of Flexicurity," Working Papers 2006-15, FEDEA. [Downloadable!]
  9. J. Ignacio Conde & Paola Profeta, 2002. "What Social Security: Beveridgean or Bismarckian?," Economics Working Papers 633, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  10. Juan Prieto & Juan Gabriel Rodríguez & Rafael Salas, . "Polarization, Inequality and Tax Reforms," Working Papers 2003-23, FEDEA. [Downloadable!]
  11. J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "Early retirement," Working Papers 2003-03, FEDEA. [Downloadable!]
    Other versions:
  12. Carlos Bethencourt & Vincenzo Galasso, . "On the Political Complementarity between Health Care and Social Security," Working Papers 184, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  13. M. Magnani, 2005. "Labour market regulation and retirement age," Economics Department Working Papers 2005-EP02, Department of Economics, Parma University (Italy). [Downloadable!]
  14. Alison Booth & Facundo Sepulveda, 2007. "Endogenous Fertility Policy And Unfunded Pensions," CAMA Working Papers 2007-06, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
  15. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Abrizio Zilibotti, 2003. "The Survival of the Welfare State," American Economic Review, American Economic Association, vol. 93(1), pages 87-112, March. [Downloadable!]
    Other versions:
  16. Marco Bassetto, 2008. "Political Economy of Taxation in an Overlapping-Generations Economy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 18-43, January. [Downloadable!] (restricted)
    Other versions:
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