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A political economy of loose means-testing in targeted social programs

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  • Cremer, Helmuth
  • Klimaviciute, Justina
  • Pestieau, Pierre

Abstract

This paper studies the political sustainability of programs that are targeted toward the poor. Given that the poor to whom these programs cater do not constitute a majority, we show that for their own good it pays to let the middle class benefit from them in a random way. This approach mimics the actual institutional arrangements whereby middle-class individuals feel that they can successfully apply to the programs. We consider a two stage decision process: first a Rawlsian government chooses the probability at which the middle class is allowed to benefit from a given program; then, majority voting determines the level of benefit and the rate of contribution. At the first, constitutional stage, the government cannot commit to a specific level of taxes and benefit but anticipates that these are set by majority voting in the second stage.

Suggested Citation

  • Cremer, Helmuth & Klimaviciute, Justina & Pestieau, Pierre, 2021. "A political economy of loose means-testing in targeted social programs," Economics Letters, Elsevier, vol. 202(C).
    • Handle: RePEc:eee:ecolet:v:202:y:2021:i:c:s0165176521000872
    DOI: 10.1016/j.econlet.2021.109810
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    References listed on IDEAS

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    1. Helmuth Cremer & Pierre Pestieau, 2018. "Means‐Tested Long‐Term Care and Family Transfers," German Economic Review, Verein für Socialpolitik, vol. 19(3), pages 351-364, August.
    2. Philippe De Donder & Eugenio Peluso, 2018. "Politically sustainable targeted transfers," Public Choice, Springer, vol. 174(3), pages 301-313, March.
    3. Georges Casamatta & Helmuth Cremer & Pierre Pestieau, 2000. "The Political Economy of Social Security," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 503-522, September.
    4. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2000. "Political sustainability and the design of social insurance," Journal of Public Economics, Elsevier, vol. 75(3), pages 341-364, March.
    5. Joakim Palme & Walter Korpi, 1998. "The Paradox of Redistribution and Strategies of Equality: Welfare State Institutions, Inequality and Poverty in the Western Countries," LIS Working papers 174, LIS Cross-National Data Center in Luxembourg.
    6. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2000. " The Political Economy of Social Security," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 503-522, June.
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    Cited by:

    1. Justina Klimaviciute & Pierre Pestieau, 2023. "The economics of long‐term care. An overview," Journal of Economic Surveys, Wiley Blackwell, vol. 37(4), pages 1192-1213, September.

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    More about this item

    Keywords

    Targeted transfers; Political support; Redistribution paradox;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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