Income Inequality, Mobility, and the Welfare State: A Political Economy Model
University of Miami - School of Business Administration - Department of Economics
Florida International University (FIU); Institute for the Study of Labor (IZA)
IZA Discussion Paper No. 5909
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.
Number of Pages in PDF File: 36
Keywords: redistribution, mobility, inequality, structure induced equilibrium
JEL Classification: D72, H53, H55working papers series
Date posted: August 22, 2011
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