Income Inequality, Mobility, and the Welfare State: A Political Economy Model

36 Pages Posted: 22 Aug 2011

See all articles by Luca Bossi

Luca Bossi

University of Miami - School of Business Administration - Department of Economics

Gulcin Gumus

Florida International University (FIU); IZA Institute of Labor Economics

Abstract

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.

Keywords: redistribution, mobility, inequality, structure induced equilibrium

JEL Classification: D72, H53, H55

Suggested Citation

Bossi, Luca and Gumus, Gulcin, Income Inequality, Mobility, and the Welfare State: A Political Economy Model. IZA Discussion Paper No. 5909. Available at SSRN: https://ssrn.com/abstract=1913616

Luca Bossi (Contact Author)

University of Miami - School of Business Administration - Department of Economics ( email )

P.O. Box 248126
Coral Gables, FL 33124-6550
United States

Gulcin Gumus

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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