Hostname: page-component-586b7cd67f-2plfb Total loading time: 0 Render date: 2024-11-23T22:26:44.315Z Has data issue: false hasContentIssue false
  • English
  • Français

INCOME INEQUALITY, MOBILITY, AND THE WELFARE STATE: A POLITICAL ECONOMY MODEL

Published online by Cambridge University Press:  04 April 2012

Luca Bossi  and
Gulcin Gumus
Luca Bossi*
Affiliation:
University of Pennsylvania
Gulcin Gumus
Affiliation:
Florida Atlantic University and IZA
*
Address correspondence to: Luca Bossi, Department of Economics, University of Pennsylvania, 160 McNeil Building, 3718 Locust Walk, Philadelphia, PA 19104-6297, USA; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

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

RedistributionMobilityInequalityStructure-Induced Equilibrium
Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Special Issue 6: Equality, Public Insurance, and Monetary Policy , September 2013 , pp. 1198 - 1226
Copyright
Copyright © Cambridge University Press 2012 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Alesina, Alberto and Angeletos, George-Marios (2005) Fairness and redistribution. American Economic Review 95 (4), 960–980.CrossRefGoogle Scholar
Alesina, Alberto, Di Tella, Rafael, and MacCulloch, Robert (2004) Inequality and happiness: are Europeans and Americans different? Journal of Public Economics 88 (9–10), 2009–2042.CrossRefGoogle Scholar
Alesina, Alberto and La Ferrara, Eliana (2005) Preferences for redistribution in the land of opportunities. Journal of Public Economics 89 (5–6), 897–931.CrossRefGoogle Scholar
Atkinson, Anthony Barnes, Bourguignon, François, and Morrisson, Christian (1992) Empirical Studies of Earnings Mobility. Chur, Switzerland: Harwood Academic.Google Scholar
Beckman, Steven R., Formby, John P., and Smith, W. James (2004) Efficiency, equity and democracy: Experimental evidence on Okun's leaky bucket. Research on Economic Inequality 11, 17–42.CrossRefGoogle Scholar
Bénabou, Roland (2000) Unequal societies: Income distribution and the social contract. American Economic Review 90 (1), 96–129.CrossRefGoogle Scholar
Bénabou, Roland and Ok, Efe A. (2001) Social mobility and the demand for redistribution: The POUM hypothesis. Quarterly Journal of Economics 116 (2), 447–487.CrossRefGoogle Scholar
Bethencourt, Carlos and Galasso, Vincenzo (2008) Political complements in the welfare state: Health care and social security. Journal of Public Economics 92 (3–4), 609–632.CrossRefGoogle Scholar
Boldrin, Michele and Montes, Ana (2005) The intergenerational state education and pensions. Review of Economic Studies 72 (3), 651–664.CrossRefGoogle Scholar
Boldrin, Michele and Rustichini, Aldo (2000) Political equilibria with social security. Review of Economic Dynamics 3 (1), 41–78.CrossRefGoogle Scholar
Browning, Edgar K. (1975) Why the social insurance budget is too large in a democracy. Economic Inquiry 13 (3), 373–388.CrossRefGoogle Scholar
Casamatta, Georges, Cremer, Helmuth, and Pestieau, Pierre (2000) The political economy of social security. Scandinavian Journal of Economics 102 (3), 503–522.CrossRefGoogle Scholar
Conde-Ruiz, J. Ignacio and Galasso, Vincenzo (2003) Early retirement. Review of Economic Dynamics 6, 12–36.CrossRefGoogle Scholar
Conde-Ruiz, J. Ignacio and Galasso, Vincenzo (2004) The macroeconomics of early retirement. Journal of Public Economics 88 (9–10), 1849–1869.CrossRefGoogle Scholar
Conde-Ruiz, J. Ignacio and Galasso, Vincenzo (2005) Positive arithmetic of the welfare state. Journal of Public Economics 89 (5–6), 933–955.CrossRefGoogle Scholar
Conde-Ruiz, J. Ignacio and Profeta, Paola (2007) The redistributive design of social security systems. Economic Journal 117 (520), 686–712.CrossRefGoogle Scholar
Creedy, John, May Li, Shuyun, and Moslehi, Solmaz (2011) The composition of government expenditure: Economic conditions and preferences. Economic Inquiry 49 (1), 94–107.CrossRefGoogle Scholar
Galasso, Vincenzo (1999) The U.S. social security system: What does political sustainability imply? Review of Economic Dynamics 2 (3), 698–730.CrossRefGoogle Scholar
Galasso, Vincenzo (2008) Postponing retirement: The political effect of aging. Journal of Public Economics 92 (10–11), 2157–2169.CrossRefGoogle Scholar
Galasso, Vincenzo and Profeta, Paola (2002) The political economy of social security: A survey. European Journal of Political Economy 18 (1), 1–29.CrossRefGoogle Scholar
Hungerford, Thomas L. (2008) Income Inequality, Income Mobility, and Economic Policy: U.S. Trends in the 1980s and 1990s. Report to Congress RL34434. Washington, DC: Congressional Research Service.Google Scholar
Koethenbuerger, Marko, Poutvaara, Panu, and Profeta, Paola (2008) Why are more redistributive social security systems smaller? A median voter approach. Oxford Economic Papers 60 (2), 275–292.CrossRefGoogle Scholar
Kopczuk, Wojciech, Saez, Emmanuel, and Song, Jae (2010) Earnings inequality and mobility in the United States: Evidence from social security data since 1937. Quarterly Journal of Economics 125 (1), 91–128.CrossRefGoogle Scholar
Lindbeck, Assar (1985) Redistribution policy and the expansion of the public sector. Journal of Public Economics 28 (3), 309–328.CrossRefGoogle Scholar
Meltzer, Allan H. and Richard, Scott F. (1981) A rational theory of the size of government. Journal of Political Economy 89 (5), 914–927.CrossRefGoogle Scholar
Moene, Karl O. and Wallerstein, Michael (2001) Inequality, social insurance and redistribution. American Political Science Review 95 (4), 859–874.CrossRefGoogle Scholar
Mueller, Dennis C. (2003) Public Choice III. New York: Cambridge University Press.CrossRefGoogle Scholar
Mulligan, Casey B. and Sala-i-Martin, Xavier (1999) Social Security in Theory and Practice (I): Facts and Political Theories. NBER Working Paper 7118.CrossRefGoogle Scholar
Osberg, Lars, Smeeding, Timothy M., and Schwabish, Jonathan (2004) Income distribution and public social expenditure: Theories, effects, and evidence. In Neckerman, Kathryn M. (ed.), Social Inequality, pp. 821–859. New York: Russell Sage Foundation.Google Scholar
Persson, Torsten and Tabellini, Guido (2000) Political Economics: Explaining Economic Policy. Cambridge, MA: MIT Press.Google Scholar
Piketty, Thomas (1995) Social mobility and redistributive politics. Quarterly Journal of Economics 110 (3), 551–584.CrossRefGoogle Scholar
Poutvaara, Panu (2006) On the political economy of social security and public education. Journal of Population Economics 19 (2), 345–365.CrossRefGoogle Scholar
Ravallion, Martin and Lokshin, Michael (2000) Who wants to redistribute? The tunnel effect in 1990s Russia. Journal of Public Economics 76 (1), 87–104.CrossRefGoogle Scholar
Shepsle, Kenneth A. (1979) Institutional arrangements and equilibrium in multidimensional voting models. American Journal of Political Science 23 (1), 27–59.CrossRefGoogle Scholar
Tabellini, Guido (2000) A positive theory of social security. Scandinavian Journal of Economics 102 (3), 523–545.CrossRefGoogle Scholar
Tanzi, Vito and Schuknecht, Ludger (2000) Public Spending in the 20th Century: A Global Perspective. Cambridge, MA: Cambridge University Press.CrossRefGoogle Scholar