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To Aid, Insurance, Transfer, or Control: What Drives the Welfare State?

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  • Edward Castronova

Abstract

The paper uses panel data on OECD countries to assess four theories about the forces that generate social spending. The four theories are: Aid: the Welfare State is about helping the poor. Insure: the Welfare State insures the consumption of middle-class voters. Transfer: the Welfare State transfers money to politically-powerful entitled groups. Control: the Welfare State is about controlling the behavior of the underclass. The data give the following grades: Aid D-, Insure C+, Transfer A-, Control D. This assessment is made by regressing the share of social spending in GDP on a vector of country characteristics. The methods involve simultaneous equation fixed-effects models, and they take advantage of some recent innovations in the growth literature involving the treatment of country-level panel data.

Suggested Citation

  • Edward Castronova, 2002. "To Aid, Insurance, Transfer, or Control: What Drives the Welfare State?," Discussion Papers of DIW Berlin 281, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp281
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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.38540.de/dp281.pdf
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    References listed on IDEAS

    as
    1. Sinn, Hans-Werner, 1995. " A Theory of the Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 495-526, December.
    2. Kristov, Lorenzo & Lindert, Peter & McClelland, Robert, 1992. "Pressure groups and redistribution," Journal of Public Economics, Elsevier, pages 135-163.
    3. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," World Bank Economic Review, World Bank Group, vol. 10(3), pages 565-591, September.
    4. Becker, Gary S., 1985. "Public policies, pressure groups, and dead weight costs," Journal of Public Economics, Elsevier, pages 329-347.
    5. Cecilia Garcia-Penalosa & Eve Caroli & Philippe Aghion, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, pages 1615-1660.
    6. repec:dau:papers:123456789/10091 is not listed on IDEAS
    7. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    8. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
    9. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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