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American Economic Review Vol. 93 No. 1 2003

The Survival of the Welfare State

John Hassler1; José V. Rodríguez Mora2; Kjetil Storesletten3; Fabrizio Zilibotti4

1 Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden, CEPR, CESIfo, and IZA. · 2 Department of Economics, Universitat Pompeu Fabra, Ramón Trías Fargas 25-27, 08005 Barcelona, Spain, and CEPR. · 3 Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden and CEPR. · 4 Department of Economics, University College London, Gower Street, London WC1E 6BT, United Kingdom, CEPR, and Institute for Economic Studies, Stockholm University.

Abstract

This paper provides an analytical characterization of Markov perfect equilibria in a model with repeated voting, where agents vote over distortionary income redistribution. A key result is that the future constituency for redistributive policies depends positively on current redistribution, since this affects both private investments and the future distribution of voters. The model features multiple equilibria. In some equilibria, positive redistribution persists forever. In other equilibria, even a majority of beneficiaries of redistribution vote strategically so as to induce the end of the welfare state next period. Skill-biased technical change makes the survival of the welfare state less likely.

DOI
10.1257/000282803321455179
Volume
93
Issue
1
Pages
87-112
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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