 The Efficiency-Equality Tradeoff in Welfare State EconomiesCERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague Abstract: This paper studies the effects of different levels of social insurance on efficiency and distribution of resources in a general equilibrium model of a closed economy with heterogeneous agents and moral hazard. I compare optimal allocations of capital, labor supply, and consumption in stationary recursive equilibria for economies with different guaranteed minimum consumption levels (social insurance). I show that the efficiency-equality tradeoff associated with welfare state economies does not hold. Efficiency decreases and equality rises as the minimal guaranteed consumption increases from zero to around one third of the average consumption. However, if social insurance expands even further, the efficiency loss becomes very high and equality worsens. Average welfare is greater in economies with high social insurance while the median agent is better off in economies with low social insurance. Finally, I study the transitions between welfare regimes' steady states to evaluate the effects of social insurance reforms. JEL-codes: C68 D82 E60 I38 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp187 Access Statistics for this paper More papers in CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague Contact information at EDIRC. |
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