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Positive Arithmetic of the Welfare State

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  • J. Ignacio Conde-Ruiz
  • Vincenzo Galasso

Abstract

This paper argues that social security enjoys wider political support than other welfare programs because: (i) retirees constitute the most homogeneous voting group,\ and (ii) the intragenerational redistribution component of social security induces low-income young to support this system. In a dynamically efficient overlapping generation economy with earnings heterogeneity, we show that, for sufficient income inequality and enough elderly in the population, a welfare system composed of a within-cohort redistribution scheme and an unfunded social security system represents the political equilibrium of a two-dimensional majoritarian election. Social security is sustained by retirees and low- income young; while intragenerational redistribution by low-income young. Our model suggests that to assess how changes in inequality affect the welfare state, the income distribution should be decomposed by age groups.

Suggested Citation

  • J. Ignacio Conde-Ruiz & Vincenzo Galasso, "undated". "Positive Arithmetic of the Welfare State," Working Papers 2003-04, FEDEA.
  • Handle: RePEc:fda:fdaddt:2003-04
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    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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