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Discretion Rather than Simple Rules: the Case of Social Protection

Author

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  • Alvaro Forteza

    (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)

  • Cecilia Noboa

    (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)

Abstract

We present a simple model of a benevolent government that provides insurance to risk averse individuals. As in macroeconomics, commitment to fully contingent rules is better than discretion, but when the government can only commit to simple rules, discretion may be the best available option. The model provides a simple albeit precise characterization of discretion and commitment to a simple rule in the context of social protection, showing when and why discretion may be better than commitment. We argue that the forces highlighted in our model can provide a rationale for several highly distortive policies often observed in the real world in weak institutional environments.

Suggested Citation

  • Alvaro Forteza & Cecilia Noboa, 2014. "Discretion Rather than Simple Rules: the Case of Social Protection," Documentos de Trabajo (working papers) 0814, Department of Economics - dECON.
    • Handle: RePEc:ude:wpaper:0814
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    File URL: https://hdl.handle.net/20.500.12008/4531
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    References listed on IDEAS

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    Cited by:

    1. Alvaro Forteza & Cecilia Noboa, 2015. "Tolerance to Tax Evasion," Documentos de Trabajo (working papers) 1015, Department of Economics - dECON.

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    More about this item

    Keywords

    Discretion; Commitment; Simple Rules; Informality;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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