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The Survival of the Welfare State

Author

Listed:
  • Zilibotti, Fabrizio
  • Hassler, John
  • Storesletten, Kjetil
  • Rodríguez Mora, José V

Abstract

This Paper provides an analytical characterization of Markov perfect equilibria in a model with repeated majority voting, where agents vote over income redistribution. The key feature of the theory is that the future constituency of redistributive policies depends positively on the current level of redistribution, since this affects both private investments and the future distribution of voters. Agents vote rationally, and fully anticipate the effects of their political choice on both private incentives and future voting outcomes. The equilibrium features multiple steady-states, one with and one without a welfare state. The theory can explain why welfare state institutions, originally introduced in response to specific shocks (e.g., the Great Depression), have been so persistent.

Suggested Citation

  • Zilibotti, Fabrizio & Hassler, John & Storesletten, Kjetil & Rodríguez Mora, José V, 2001. "The Survival of the Welfare State," CEPR Discussion Papers 2905, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2905
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    More about this item

    Keywords

    Repeated voting; Markov equilibrium; Multiple equilibria; Welfare state; Redistribution; Policy-behaviour complementarity; Wage inequality; Education;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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