The survival of the welfare state

John Hassler, José V.Rodríguez Mora, Kjetil Storesletten, Fabrizio Zilibotti

Research output: Contribution to journalReview articlepeer-review

119 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)87-112
Number of pages26
JournalAmerican Economic Review
Volume93
Issue number1
DOIs
StatePublished - Mar 2003
Externally publishedYes

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