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The survival of the welfare state

John Hassler (), Sevi Rodríguez Mora (), Kjetil Storesletten () and Fabrizio Zilibotti ()

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

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 (search for similar items in EconPapers)
JEL-codes: D72 E62 H11 H31 P16 (search for similar items in EconPapers)
Date: 2001-12
New Economics Papers: this item is included in nep-pbe
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Journal Article: The Survival of the Welfare State (2003) Downloads
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Working Paper: The Survival of the Welfare State (2001) Downloads
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