Inattentive voters and welfare-state persistence
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Date
2012-03-07
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Abstract
Welfare-state measures often tend to persist even when they
seem to have become suboptimal due to changes in the economic
environment. This paper proposes an information-based explanation for this welfare-state persistence. I present a structural
model where rationally inattentive voters decide upon implementations and removals of social insurance. In this model, welfare-
state persistence arises from disincentive effects of social insurance on attentiveness. The welfare state crowds out private financial precautions and with it agents' attentiveness to changes in
economic fundamentals. When welfare-state arrangements are
pronounced, agents realize changes in economic fundamentals
later and reforms have considerable delays.
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Keywords
imperfect information, voting, welfare state