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

Luca Bossi and Gulcin Gumus

No 5909, IZA Discussion Papers from Institute of Labor Economics (IZA)

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: inequality; redistribution; structure induced equilibrium; mobility (search for similar items in EconPapers)
JEL-codes: D72 H53 H55 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2011-08
New Economics Papers: this item is included in nep-cdm, nep-dge, nep-pbe and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - revised version published in: Macroeconomic Dynamics , 2013, 17 (6), 1198-1226

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Related works:
Journal Article: INCOME INEQUALITY, MOBILITY, AND THE WELFARE STATE: A POLITICAL ECONOMY MODEL (2013)
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