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Income Inequality, Mobility, and the Welfare State: A Political Economy Model

  • Bossi, Luca

    ()

    (University of Pennsylvania)

  • Gumus, Gulcin

    ()

    (Florida Atlantic University)

In this paper, we set up a three-period stochastic overlapping generations model to analyze the implications of income inequality and mobility for demand for redistribution and social insurance. We model the size of two different public programs under the welfare state. We investigate bidimensional voting on the tax rates that determine the allocation of government revenues among transfer payments and old-age pensions. We show that the coalitions formed, the resulting political equilibria, and the demand for redistribution crucially depend on the level of income inequality and mobility.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5909.

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Length: 36 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:iza:izadps:dp5909
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  6. Conde-Ruiz, Jose Ignacio & Galasso, Vincenzo, 2005. "Positive arithmetic of the welfare state," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 933-955, June.
  7. Tabellini, Guido, 1990. "A Positive Theory of Social Security," CEPR Discussion Papers 394, C.E.P.R. Discussion Papers.
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  9. Koethenbuerger, Marko & Poutvaara, Panu & Profeta, Paola, 2008. "Why are more redistributive social security systems smaller? A median voter approach," Munich Reprints in Economics 19459, University of Munich, Department of Economics.
  10. Conde-Ruiz, José Ignacio & Galasso, Vincenzo, 2000. "Early Retirement," CEPR Discussion Papers 2589, C.E.P.R. Discussion Papers.
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  16. Galasso, Vincenzo & Profeta, Paola, 2002. "The political economy of social security: a survey," European Journal of Political Economy, Elsevier, vol. 18(1), pages 1-29, March.
  17. Bethencourt, Carlos & Galasso, Vincenzo, 2008. "Political complements in the welfare state: Health care and social security," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 609-632, April.
  18. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
  19. Casey B. Mulligan & Xavier Sala-i-Martin, 1999. "Social security in theory and practice (I): Facts and political theories," Economics Working Papers 384, Department of Economics and Business, Universitat Pompeu Fabra.
  20. 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 914-27, October.
  21. John Creedy & Shuyun May Li & Solmaz Moslehi, 2011. "The Composition Of Government Expenditure: Economic Conditions And Preferences," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 94-107, 01.
  22. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 373-88, September.
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  24. Lindbeck, Assar, 1985. "Redistribution policy and the expansion of the public sector," Journal of Public Economics, Elsevier, vol. 28(3), pages 309-328, December.
  25. Ravallion, Martin & Lokshin, Michael, 2000. "Who wants to redistribute?: The tunnel effect in 1990s Russia," Journal of Public Economics, Elsevier, vol. 76(1), pages 87-104, April.
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