The Survival of the Welfare State
44 Pages Posted: 10 Aug 2001
There are 2 versions of this paper
The Survival of the Welfare State
The Survival of the Welfare State
Date Written: August 2001
Abstract
This Paper provides an analytical characterization of Markov perfect equilibria in a model with repeated majority voting, where agents vote over 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 fully anticipate the effects of their political choice on both private incentives and future voting outcomes. The equilibrium features multiple steady-states, one with and one without a welfare state. The theory can explain why welfare state institutions, originally introduced in response to specific shocks (e.g., the Great Depression), have been so persistent. complementarity, wage inequality, education
Keywords: Repeated voting, markov equilibrium, multiple equilibria, welfare state, redistribution, policy-behaviour
JEL Classification: D72, E62, H11, H31, P16
Suggested Citation: Suggested Citation