IDEAS home Printed from https://ideas.repec.org/p/sap/wpaper/wp116.html
   My bibliography  Save this paper

The Politics of Social Protection: Social Expenditure versus Markets' Regulation

Author

Listed:
  • Debora Di Gioacchino
  • Laura Sabani

Abstract

Recently, it has been argued that the notion of a European social model is misleading and that there are in fact different European social models with different features and different performances in terms of efficiency and equity. In this paper, we look at the welfare state from a political economy point of view and interpret the different regimes as possible outcomes of a political process through which voters’ heterogeneous preferences are aggregated. In our model, agents differ in two respects: income and socioeconomic vulnerability. Policy-makers must decide on two policies: a proportional income tax to finance a social transfer, providing equal benefits to all citizens, and a market regulation policy which benefits only vulnerable workers, providing them with additional protection against unemployment risk. Market regulation is inefficient since it decreases aggregate resources. Individuals’ heterogeneity generates a conflict over policies. We feature the political process as a two-party electoral competition in a citizen-candidate model with probabilistic voting. We show that an inefficient equilibrium exists and this outcome is more likely the greater are income inequality and the proportion of vulnerable workers. Intuitively, greater inequality raises the level of redistributive spending desired by the poor, making, at the same time, the rich more adverse to the welfare state. In this framework, both the rich and the poor, in order to win the election and realize the fiscal gain, have an incentive to support market restrictions, in the attempt to capture the votes of the vulnerable minority, who benefit from these policies.

Suggested Citation

  • Debora Di Gioacchino & Laura Sabani, 2009. "The Politics of Social Protection: Social Expenditure versus Markets' Regulation," Working Papers 116, University of Rome La Sapienza, Department of Public Economics.
  • Handle: RePEc:sap:wpaper:wp116
    as

    Download full text from publisher

    File URL: http://www.dipecodir.it/upload/wp/pdf/wp116.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Andrew Clark & Fabien Postel-Vinay, 2009. "Job security and job protection," Oxford Economic Papers, Oxford University Press, vol. 61(2), pages 207-239, April.
    2. Fernández, Raquel & Levy, Gilat, 2008. "Diversity and redistribution," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 925-943, June.
    3. Aghion, Philippe & Askenazy, Philippe & Bourlès, Renaud & Cette, Gilbert & Dromel, Nicolas, 2009. "Education, market rigidities and growth," Economics Letters, Elsevier, vol. 102(1), pages 62-65, January.
    4. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, Oxford University Press, pages 1339-1382.
    5. Timothy Besley & Stephen Coate, 1997. "An Economic Model of Representative Democracy," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 85-114.
    6. Olivier Blanchard & Jean Tirole, 2004. "The Optimal Design of Unemployment Insurance and Employment Protection. A First Pass," NBER Working Papers 10443, National Bureau of Economic Research, Inc.
    7. Gilles Saint-Paul, 2002. "The Political Economy of Employment Protection," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 672-701, June.
    8. D'Orlando, Fabio & Ferrante, Francesco, 2009. "The demand for job protection: Some clues from behavioural economics," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(1), pages 104-114, January.
    9. Amable, Bruno & Gatti, Donatella, 2004. "The Political Economy of Job Protection and Income Redistribution," IZA Discussion Papers 1404, Institute for the Study of Labor (IZA).
    10. Roemer, John E., 1998. "Why the poor do not expropriate the rich: an old argument in new garb," Journal of Public Economics, Elsevier, vol. 70(3), pages 399-424, December.
    11. Fiori, Giuseppe & Nicoletti, Giuseppe & Scarpetta, Stefano & Schiantarelli, Fabio, 2007. "Employment Outcomes and the Interaction Between Product and Labor Market Deregulation: Are They Substitutes or Complements?," IZA Discussion Papers 2770, Institute for the Study of Labor (IZA).
    12. Paul Conway & Véronique Janod & Giuseppe Nicoletti, 2005. "Product Market Regulation in OECD Countries: 1998 to 2003," OECD Economics Department Working Papers 419, OECD Publishing.
    13. Martin J. Osborne, 1995. "Spatial Models of Political Competition under Plurality Rule: A Survey of Some Explanations of the Number of Candidates and the Positions They Take," Canadian Journal of Economics, Canadian Economics Association, vol. 28(2), pages 261-301, May.
    14. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, January.
    15. Lilia Costabile, 2009. "Institutions for Social Well-Being: The Author’s Reply," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 3, August.
    16. Timothy Besley & Stephen Coate, 2003. "Elected Versus Appointed Regulators: Theory and Evidence," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1176-1206, September.
    17. Levy, Gilat, 2004. "A model of political parties," Journal of Economic Theory, Elsevier, vol. 115(2), pages 250-277, April.
    18. Cusack, Thomas R. & Iversen, Torben & Rehm, Philipp, 2005. "Risks at work: the demand and supply sides of government redistribution," Discussion Papers, Research Unit: Institutions, States, Markets SP II 2005-15, Social Science Research Center Berlin (WZB).
    19. Wright, Randall, 1986. "The redistributive roles of unemployment insurance and the dynamics of voting," Journal of Public Economics, Elsevier, vol. 31(3), pages 377-399, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Maria Ines Barbosa Camargo, 2015. "Efectos de los mecanismos de financiación en el acceso a la educación superior en Colombia," Investigaciones de Economía de la Educación volume 10,in: Marta Rahona López & Jennifer Graves (ed.), Investigaciones de Economía de la Educación 10, edition 1, volume 10, chapter 5, pages 115-134 Asociación de Economía de la Educación.

    More about this item

    Keywords

    welfare state; social protection; market regulations; political process; political economy.;

    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
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sap:wpaper:wp116. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Luisa Giuriato). General contact details of provider: http://edirc.repec.org/data/dprosit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.