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Changing Social Contracts: Beliefs Anddissipative Inclusion In Brazil

  • BERNARDO MUELLER
  • LEE ALSTON
  • MARCUS MELO
  • CARLOS PEREIRA

Social contracts about inequality and redistribution are country-specific. We rely on a model of inequality and redistribution where multiple steady states can emerge in given country. We link the model to the recent literature on beliefs and argue that beliefs are a major determinant of which equilibrium results. We show that changes in beliefs may shift the equilibrium in a country over time. We present evidence that beliefs are typically very stable over time, yet argue that Brazil has recently undergone a dramatic shift in beliefs which we show is associated with a change in the country's social contract in the past thirty years. The transition from one social contract to another has taken place through a process which we call 'dissipative inclusion', where redistribution and social inclusion are effectively achieved but accompanied by distortions, inefficiencies and rent dissipation.

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Paper provided by ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics] in its series Anais do XL Encontro Nacional de Economia [Proceedings of the 40th Brazilian Economics Meeting] with number 076.

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Date of creation: 2014
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Handle: RePEc:anp:en2012:076
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