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The Spirit of the Welfare State? Adaptation in the Demand for Social Insurance

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  • Martin Ljunge

Abstract

Young generations demand substantially more social insurance than older generations, although program rules have been constant for decades. I postulate a model in which the utility of claiming social insurance benefits depends on older generations' past behavior. The intertemporal mechanism estimated can account for half of the younger generations' higher demand for social insurance benefits. Instrumenting for older generations' behavior using mortality rates reveals an even stronger influence of reference group behavior on individual demand. The analysis suggests that behavioral responses estimated by natural experiments could strongly underestimate the true long-run elasticities relevant for the fiscal sustainability of the welfare state.

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  • Martin Ljunge, 2012. "The Spirit of the Welfare State? Adaptation in the Demand for Social Insurance," Journal of Human Capital, University of Chicago Press, vol. 6(3), pages 187-223.
  • Handle: RePEc:ucp:jhucap:doi:10.1086/667723
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    Cited by:

    1. Martin Ljunge, 2011. "Sick of Taxes? Evidence on the Elasticity of Labor Supply when Workers Are Free to Choose," Discussion Papers 11-27, University of Copenhagen. Department of Economics.
    2. Yann Algan & Pierre Cahuc & Marc Sangnier, 2016. "Trust and the Welfare State: the Twin Peaks Curve," Economic Journal, Royal Economic Society, vol. 126(593), pages 861-883, June.
    3. Giacomo Corneo & Frank Neher, 2014. "Income inequality and self-reported values," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 12(1), pages 49-71, March.
    4. Martin Ljunge, 2015. "Social Capital and the Family: Evidence that Strong Family Ties Cultivate Civic Virtues," Economica, London School of Economics and Political Science, vol. 82(325), pages 103-136, January.
    5. Yann Algan & Pierre Cahuc & Marc Sangnier, 2016. "Trust and the Welfare State: the Twin Peaks Curve," Economic Journal, Royal Economic Society, vol. 126(593), pages 861-883, June.
    6. Lucifora, Claudio & Meurs, Dominique, 2012. "Family Values, Social Needs and Preferences for Welfare," IZA Discussion Papers 6977, Institute for the Study of Labor (IZA).
    7. Lindbeck, Assar & Persson, Mats, 2015. "Norms, Incentives and Information in Income Insurance," Working Paper Series 1058, Research Institute of Industrial Economics.
    8. Martin Ljunge, 2012. "Family Ties and Civic Virtues: Evidence on Wilson's "Moral Sense"," Discussion Papers 12-07, University of Copenhagen. Department of Economics.

    More about this item

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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