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Income Inequality, Mobility, and the Welfare State: A Political Economy Model

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  • Bossi, Luca

    ()
    (University of Pennsylvania)

  • Gumus, Gulcin

    ()
    (Florida Atlantic University)

Abstract

In this paper, we set up a three-period stochastic overlapping generations model to analyze the implications of income inequality and mobility for demand for redistribution and social insurance. We model the size of two different public programs under the welfare state. We investigate bidimensional voting on the tax rates that determine the allocation of government revenues among transfer payments and old-age pensions. We show that the coalitions formed, the resulting political equilibria, and the demand for redistribution crucially depend on the level of income inequality and mobility.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5909.

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Length: 36 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:iza:izadps:dp5909

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Keywords: inequality; redistribution; structure induced equilibrium; mobility;

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Cited by:
  1. Torben M. Andersen & Joydeep Bhattacharya, 2013. "The Intergenerational Welfare State," CESifo Working Paper Series 4359, CESifo Group Munich.

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