Why Doesn’t the US Have a European-Style Welfare System(1)

Why Doesn’t the US Have a European-Style Welfare System(1)

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NBER WORKING PAPER SERIES WHY DOESN’T THE US HAVE A EUROPEAN-STYLE WELFARE SYSTEM? Alberto Alesina Edward Glaeser Bruce Sacerdote Working Paper 8524 http://www.nber.org/papers/w8524 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 October 2001 The paper was presented at the Brookings Panel on Economic Activity, Sept 7, 2001. We are grateful to our discussants Steve Durlauf and Frank Levy and the organizers Bill Brainard and George Perry for very useful suggestions. We also thank Benjamin Friedman, Roberto Perotti, Andrei Shleifer, Theda Skocpol and a large number of conference participants for very useful comments. We thank the National Science Foundation for financial assistance through a grant with the NBER. Arnaud Devleeschauwer and Jesse Shapiro provided excellent research assistance. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research. © 2001 by Alberto Alesina, Edward Glaeser and Bruce Sacerdote. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
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Why Doesn’t the US Have a European-Style Welfare System? Alberto Alesina, Edward Glaeser and Bruce Sacerdote NBER Working Paper No. 8524 October 2001 ABSTRACT European countries are much more generous to the poor relative to the US level of generosity. Economic models suggest that redistribution is a function of the variance and skewness of the pre-tax income distribution, the volatility of income (perhaps because of trade shocks), the social costs of taxation and the expected income mobility of the median voter. None of these factors appear to explain the differences between the US and Europe. Instead, the differences appear to be the result of racial heterogeneity in the US and American political institutions. Racial animosity in the US makes redistribution to the poor, who are disproportionately black, unappealing to many voters. American political institutions limited the growth of a socialist party, and more generally limited the political power of the poor. Alberto Alesina Edward Glaeser Department of Economics Department of Economics Harvard University Cambridge, MA 02138 Cambridge, MA 02138 and NBER aalesina@harvard.edu eglaeser@kuznets.harvard.edu Bruce Sacerdote Department of Economics Dartmouth College Hanover, NH 03755-3514 bruce.i.sacerdote@dartmouth.edu
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3 1. INTRODUCTION European governments redistribute income amongst their citizens on a much larger scale than does the United States government. European social programs are more generous and reach a larger share of citizens. European tax systems are more progressive. Europe has more intrusive regulations that are often meant to protect the poor. In this paper we try to understand why.
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Why Doesn’t the US Have a European-Style Welfare System(1)

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