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Changing Social Contracts: Beliefs and Dissipative Inclusion in Brazil

  • Lee J. Alston
  • Marcus Melo
  • Bernardo Mueller
  • 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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18588.

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Date of creation: Dec 2012
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Publication status: published as Alston, Lee J. & Melo, Marcus Andre & Mueller, Bernardo & Pereira, Carlos, 2013. "Changing social contracts: Beliefs and dissipative inclusion in Brazil," Journal of Comparative Economics, Elsevier, vol. 41(1), pages 48-65.
Handle: RePEc:nbr:nberwo:18588
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