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The survival of the welfare state

  • John Hassler
  • José V. Rodríguez Mora
  • Kjetil Storesletten
  • Fabrizio Zilibotti

This paper provides an analytical characterization of Markov perfect equilibria in a politico-economic model with repeated voting, where agents vote over distortionary income redistribution. The key feature of the theory is that the future constituency of redistributive policies depends positively on the current level of redistribution, since this affects both private investments and the future distribution of voters. Agents vote rationally and fullly anticipate the effects of their political choice on both private incentives and future voting outcomes. The model features multiple equilibria. In "pro-welfare" equilibria, both welfare state policies and their effects on distribution persist forever. In "anti-welfare equilibria", even a majority of beneficiaries of redistributive policies vote strategically so as to induce the formation of a future majority that will vote for zero redistribution.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 603.

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Date of creation: Dec 2001
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Handle: RePEc:upf:upfgen:603
Contact details of provider: Web page: http://www.econ.upf.edu/

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