The Survival of the Welfare State

UPF, Economics and Business Working Paper No. 603

Posted: 17 Aug 2002

See all articles by John Hassler

John Hassler

Stockholm University - Institute for International Economic Studies (IIES); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

José Vincente Rodríguez Mora

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Kjetil Storesletten

University of Oslo - Department of Economics; Centre for Economic Policy Research (CEPR)

Fabrizio Zilibotti

University of Zurich; Centre for Economic Policy Research (CEPR)

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Abstract

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.

Keywords: Repeated voting, Markov equilibrium, multiple equilibria, welfare state, redistribution, political economy, policy persistence, wage inequality, education

JEL Classification: D72, E62, H11, H31, P16

Suggested Citation

Hassler, John and Rodríguez Mora, José Vincente and Storesletten, Kjetil and Zilibotti, Fabrizio, The Survival of the Welfare State. UPF, Economics and Business Working Paper No. 603, Available at SSRN: https://ssrn.com/abstract=311583

John Hassler (Contact Author)

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden
+46 816 2070 (Phone)
+46 816 1443 (Fax)

Centre for Economic Policy Research (CEPR)

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CESifo (Center for Economic Studies and Ifo Institute)

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IZA Institute of Labor Economics

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José Vincente Rodríguez Mora

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
+34 93 542 1755 (Phone)
+34 93 542 1746 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Kjetil Storesletten

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
+47 2284 4009 (Phone)
+47 2285 5035 (Fax)

HOME PAGE: http://folk.uio.no/kjstore/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Fabrizio Zilibotti

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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