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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: boluca@econ.upenn.edu.
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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 

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