Why Doesnt the US Have a European-Style Welfare System--student

Why Doesnt the US Have a European-Style Welfare System--student

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Why Doesn’t the United States have a European-Style Welfare System? By: Alesina, Glaeser, and Sacerdote
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Basic Idea “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.”
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Why is there more redistribution of income in European countries than in the United States? •Three Explanations: •Economic •Political •Behavioral
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US vs. Europe
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US vs. Europe
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US vs. Europe
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US vs. Europe
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Economic Explanations Pre-Tax Income Inequality The Costs of Redistribution Social Mobility and Income Uncertainty Openness
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Pre-Tax Income Inequality The argument is that redistribution will be higher in Europe if the pre-tax income inequality is higher in Europe – In actuality, it is the opposite: • Gini Coefficient in the United States is 38.5 • Gini Coefficient in Europe is 29.6
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Pre-Tax Income Inequality Explanations for the failure of pre-tax inequality to lead to more redistribution in Europe. – Poor are unlikely to have much political power. – Pre-tax Gini-coefficient is a poor indicator of pre-tax inequality because a number of other polices could effect the inequality of the countries.
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Cost of Redistribution Distortions of Taxation – If Europe has less distortionary taxes, then larger welfare states are expected Tax Compliance – Less in Europe than in the US Europe – Rent control – Labor market interventions “There is no evidence that Europeans are using less distortionary taxes.” Americans believe that the government is more wasteful than in Europe
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Belief Systems 71% of Americans believe the poor can escape poverty, 40% of Europeans believe the poor can escape poverty Americans believe they have more income mobility Although data show that there is almost no difference between the United States and Europe in mobility for the middle class
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The size of government and income support policies may be explained by openness: – Open economies are more unstable, because they are more subject to external shocks. Welfare provides insurance to external shocks – Therefore, the more open the economy, the larger the government should be
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US vs. Europe in Openness and Volatility – The US economy is more closed that European states – The US has had more economic volatility in growth, unemployment and productivity in the last 40 years Contradictions – Since the US economy is more closed, it should be less in need of a larger government to achieve stability • The results are mixed
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Transfers/GDP vs. (Imports + Exports/GDP) OECD
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Political Explanations Electoral System Political History
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This note was uploaded on 04/05/2011 for the course ECO 365 taught by Professor Giederman during the Winter '11 term at Grand Valley State University.

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Why Doesnt the US Have a European-Style Welfare System--student

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