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Positive Arithmetic of the Welfare State

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Author Info
J. Ignacio Conde-Ruiz
Vincenzo Galasso

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Abstract

This paper argues that social security enjoys wider political support than other welfare programs because: (i) retirees constitute the most homogeneous voting group,\ and (ii) the intragenerational redistribution component of social security induces low-income young to support this system. In a dynamically efficient overlapping generation economy with earnings heterogeneity, we show that, for sufficient income inequality and enough elderly in the population, a welfare system composed of a within-cohort redistribution scheme and an unfunded social security system represents the political equilibrium of a two-dimensional majoritarian election. Social security is sustained by retirees and low- income young; while intragenerational redistribution by low-income young. Our model suggests that 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 FEDEA in its series Working Papers with number 2003-04.

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Handle: RePEc:fda:fdaddt:2003-04

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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)
  2. Persson, Torsten & Tabellini, Guido, 1997. "Political Economics and Macroeconomic Policy," CEPR Discussion Papers 1759, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  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!]
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  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)
  9. Michael J. Boskin & Laurence J. Kotlikoff & Douglas J. Puffert & John B. Shoven, 1987. "Social Security: A Financial Appraisal Across and Within Generations," NBER Working Papers 1891, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  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)
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(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. 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!]
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  2. 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:
  3. 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:
  4. J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "The Macroeconomics of Early Retirement," Working Papers 2003-05, FEDEA. [Downloadable!]
    Other versions:
  5. Boeri, Tito & Conde-Ruiz, José Ignacio & Galasso, Vincenzo, 2003. "Protecting Against Labour Market Risk: Employment Protection or Unemployment Benefits?," CEPR Discussion Papers 3990, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. M. Magnani, 2005. "Labour market regulation and retirement age," Economics Department Working Papers 2005-EP02, Department of Economics, Parma University (Italy). [Downloadable!]
  7. Tito Boeri & Ignacio Conde-Ruiz & Vincenzo Galasso, 2004. "Cross-skill Redistribution and the Tradeoff between Unemployment Benefits and Employment Protection," Working Papers 271, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  8. 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:
  9. J. Ignacio Conde-Ruiz & Paola Profeta, 2007. "The Redistributive Design of Social Security Systems," Working Papers 2007-07, FEDEA. [Downloadable!]
    Other versions:
  10. 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!]
  11. Hans Fehr & Christian Habermann, 2005. "Risk Sharing and Efficiency Implications of Progressive Pension Arrangements," DNB Working Papers 064, Netherlands Central Bank, Research Department. [Downloadable!]
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  12. Juan Prieto & Juan Gabriel Rodríguez & Rafael Salas, . "Polarization, Inequality and Tax Reforms," Working Papers 2003-23, FEDEA. [Downloadable!]
  13. 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!]
  14. J. Ignacio Conde-Ruiz & Vincenzo Galasso, . "Early retirement," Working Papers 2003-03, FEDEA. [Downloadable!]
    Other versions:
  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. Tito Boeri & J. Ignacio Conde-Ruiz & Vincenzo Galasso, 2006. "The Political Economy of Flexicurity," Working Papers 2006-15, FEDEA. [Downloadable!]
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This page was last updated on 2009-11-1.

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