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Redistribution

 

  • Welfare state 
    • Defined
    • Measurement issues
  • Taxes and transfers
  • Origins and political logic
    • Private goods
    • Public goods
    • Transfers versus insurance
  • Explaining variation
  • End of semester stuff 

POL 103

Thursday

April 23

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Redistribution

 

  • Welfare state 
    • Defined
    • Measurement issues
  • Taxes and transfers
  • Origins and political logic
    • Private goods
    • Public goods
    • Transfers versus insurance
  • Explaining variation
  • End of semester stuff 

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1.1. Defined

Welfare state: role states play in protecting the economic and social well being of residents through redistributive taxing and spending programs

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1.1. Defined

Public sector: government delivery of goods and services

Private sector: all economic activity funded outside of the state, by individuals or private corporations

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Redistribution

 

  • Welfare state 
    • Defined
    • Measurement issues
  • Taxes and transfers
  • Origins and political logic
    • Private goods
    • Public goods
    • Transfers versus insurance
  • Explaining variation
  • End of semester stuff 

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1.2. Measurement issues

Crude measure:

Total amount and types of state programs offered to the general public: programs pertaining to old age, pensions; publicly provided healthcare; family support; job training and retraining programs and unemployment compensation; public education; and housing subsidies

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1.2. Measurement issues

Measurement problems:

  • Some programs are private (sometimes mandatory), such as family leave, health insurance, unemployment, pensions
  • Some programs are through tax codes, rather than “spending”

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1.2. Measurement issues

Percent of GDP on social programs, including health, pensions, housing�(data from 2010)

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1.2. Measurement issues

Tax or regulatory measures,�“submerged state”

  • Transfers mandated by state but that do not count as “spending”
  • Private spending or tax credits�
  • Examples:
    • Chile and Singapore, pensions
    • Germany, health insurance

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1.2. Measurement issues

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1.2. Measurement issues

Caveat: �spending isn’t the best measure of services

  • Efficiency of spending varies
  • Things cost different amounts of money�
  • Examples:
    • Housing assistance
    • Health insurance

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1.2. Health Care

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Redistribution

 

  • Welfare state 
    • Defined
    • Measurement issues
  • Taxes and transfers
  • Origins and political logic
    • Private goods
    • Public goods
    • Transfers versus insurance
  • Explaining variation
  • End of semester stuff 

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2. Taxes and transfers

Two kinds of taxes:

  • Progressive: �Wealthier people pay a higher proportion of their income than poorer people�Ex: U.S. federal income taxes
  • Regressive:�Wealthier people pay of lower proportion of their income than poorer people�Ex: sales tax, value-added tax, �U.S. payroll tax, U.S. state and local taxes

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2. Taxes and transfers

Transfers in general:

  • Progressive: �Wealthier people get back less than what they pay�Ex: income transfers, public pensions, UK health
  • Regressive:�Wealthier people get back what they pay (or more)�Ex: Latin Am. education, US housing, German health

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Redistribution

 

  • Welfare state 
    • Defined
    • Measurement issues
  • Taxes and transfers
  • Origins and political logic
    • Private goods
    • Public goods
    • Transfers versus insurance
  • Explaining variation
  • End of semester stuff 

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3. Origins and political logic

Why progressive transfers? Possibilities:

  • Private goods: transfer resources from less-powerful to more-powerful groups
  • Public goods: transfer resources in ways that promote development and political stability
  • Insurance: transfer resources to reduce risk

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Redistribution

 

  • Welfare state 
    • Defined
    • Measurement issues
  • Taxes and transfers
  • Origins and political logic
    • Private goods
    • Public goods
    • Transfers versus insurance
  • Explaining variation
  • End of semester stuff 

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3.1. Private goods

Definitions:

  • Median wealth: �Line everyone up in order of how rich they are�Median is the one in the middle
  • Mean wealth:�Divide total wealth by number of people

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3.1. Private goods

If mean wealth is higher than media wealth, then in principle a majority would favor transfer

More people would directly benefit from the transfer than would be directly harmed

But there are limits:

  • This doesn’t happen as much as you’d think
  • Taxes on wealthiest 49% are much less than the “revenue-maximizing” level, across the world

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3.1. Private goods

Most estimates of “revenue-maximizing” tax rate are about 70%

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3.1. Private goods

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3.1. Private goods

So why are rates lower?

Theories:

  • Expected mobility
  • Culture
  • Ignorance
  • Oligarchy
  • Countervailing schisms
  • Indirect payments

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Redistribution

 

  • Welfare state 
    • Defined
    • Measurement issues
  • Taxes and transfers
  • Origins and political logic
    • Private goods
    • Public goods
    • Transfers versus insurance
  • Explaining variation
  • End of semester stuff 

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3.2. Public goods

Why progressive transfers?

  • Transfers create positive externalities
    • Education, health are social investment
    • Roads, sewers create network effects
  • Transfers create political public goods
    • Stability and support for capitalism
    • Social capital and trust
  • Transfers create economic public goods
    • Macroeconomic stability
    • Develop “human capital”

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Redistribution

 

  • Welfare state 
    • Defined
    • Measurement issues
  • Taxes and transfers
  • Origins and political logic
    • Private goods
    • Public goods
    • Transfers versus insurance
  • Explaining variation
  • End of semester stuff 

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3.3. Transfers versus insurance

Some programs are about insurance

  • Citizens do not know in advance whether they will fall into a beneficiary category
    • Unemployment
    • Medical expense
    • University tuition

These programs are more about risk than transfer

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Why Welfare States Exist

Copyright © 2013 Pearson Education, Inc. All Rights Reserved.

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Redistribution

 

  • Welfare state 
    • Defined
    • Measurement issues
  • Taxes and transfers
  • Origins and political logic
    • Private goods
    • Public goods
    • Transfers versus insurance
  • Explaining variation
  • End of semester stuff 

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4. Explaining variation

Why do some states have larger welfare states than others?

Things that may lead to larger transfers:

  • Strong interest groups - labor
  • Left-right political identity
  • PR (instead of majoritarianism)
  • Centralization (instead of federalism)
  • Globalization�

Note: the U.S. is unusual...

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Redistribution

 

  • Welfare state 
    • Defined
    • Measurement issues
  • Taxes and transfers
  • Origins and political logic
    • Private goods
    • Public goods
    • Transfers versus insurance
  • Explaining variation
  • End of semester stuff 

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5. End of semester stuff

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