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To Aid, Insurance, Transfer, or Control: What Drives the Welfare State?

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  • Edward Castronova
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    Abstract

    The paper uses panel data on OECD countries to assess four theories about the forces that generate social spending. The four theories are: Aid: the Welfare State is about helping the poor. Insure: the Welfare State insures the consumption of middle-class voters. Transfer: the Welfare State transfers money to politically-powerful entitled groups. Control: the Welfare State is about controlling the behavior of the underclass. The data give the following grades: Aid D-, Insure C+, Transfer A-, Control D. This assessment is made by regressing the share of social spending in GDP on a vector of country characteristics. The methods involve simultaneous equation fixed-effects models, and they take advantage of some recent innovations in the growth literature involving the treatment of country-level panel data.

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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.38540.de/dp281.pdf
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    Bibliographic Info

    Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 281.

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    Length: 46 p.
    Date of creation: 2002
    Date of revision:
    Handle: RePEc:diw:diwwpp:dp281

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    1. Kristov, Lorenzo & Lindert, Peter & McClelland, Robert, 1992. "Pressure groups and redistribution," Journal of Public Economics, Elsevier, vol. 48(2), pages 135-163, July.
    2. Cecilia Garcia-Penalosa & Eve Caroli & Philippe Aghion, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1615-1660, December.
    3. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
    4. Hans-Werner Sinn, 1994. "A Theory of the Welfare State," NBER Working Papers 4856, National Bureau of Economic Research, Inc.
    5. Gary S. Becker, 1984. "Public Policies, Pressure Groups, and Dead Weight Costs," University of Chicago - George G. Stigler Center for Study of Economy and State 35, Chicago - Center for Study of Economy and State.
    6. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
    7. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
    8. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," World Bank Economic Review, World Bank Group, vol. 10(3), pages 565-91, September.
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