Search

On the Counterfactual Problem of Welfare State Research: How Can We Measure Redistribution

PublicationArticle (with peer review)
Andreas Bergh, Företagandets villkor, Forskning, Metod, Omfördelning, Sociologi, Välfärd

Abstract

To measure welfare state redistribution, it is standard to compare the income distributions before and after taxes and transfers. This approach incorrectly assumes that the pre fisc distribution is independent of the welfare state. This paper identifies four sources of bias in the pre/post-approach: 1) Welfare states redistribute both between individuals and between generations, 2) Labor supply responses vary between socio-economic groups and depend on taxes and transfers, 3) The redistribution within social insurance schemes depends on the correlation between risk and income, and 4) Welfare states use public education to influence the distribution of earnings capabilities. I combine theoretical models, numeric simulations and empirics to examine the bias caused by these factors. Results indicate that the pre/post approach is more biased for welfare states with flat rate benefits and proportional taxation, that positively income-related benefits have a redistributive effect, and that public expenditure on primary and secondary education reduces inequality.

Bergh, A. (2005). “On the Counterfactual Problem of Welfare State Research: How Can We Measure Redistribution?”European Sociological Review, 21(4): 345-357.

Based on content

Explaining the Survival of the Swedish Welfare State
Article (with peer review)Publication
Bergh, A.
Publication year

2008

Abstract

Despite challenges and doomsday predictions, the Nordic welfare states with high taxes and public expenditure are still with us. This paper describes strategic choices for policy makers of the welfare state and uses the case of Sweden to argue that the high tax welfare state has survived several challenges through a process of incremental change, where the welfare state is modified in order to maintain political support from voters who would otherwise favor cutbacks. This gradual adaptation leads to heterogeneous universality characterized by flexibility, freedom of choice, and financial solutions that involve both public and private funding. While such policies may increase inequality, they play a crucial role in maintaining political support for high taxes and expenditures. Compared to likely counterfactual scenarios, this gradual adaptation may be the political strategy that minimizes inequality in the long run.

Related content: Working Paper No. 101

A Critical Note on the Theory of Inequity Aversion
Article (with peer review)Publication
Bergh, A.
Publication year

2008

Abstract

The impact of the paper “A Theory of Fairness, Competition and Cooperation” by Ernst Fehr and Klaus Schmidt (Quarterly Journal of Economics, 1999), has been tremendous, and the theory of inequity aversion has been widely used in varying fields of economics. Here, the merits of inequity aversion as a theory of fairness and as an explanation of human behavior are critically examined. I argue that the theory has weak points in both areas. First, it provides no deeper understanding of why and when people exhibit other-regarding preferences. Second, the outcome-based nature of the theory ignores the fundamental role of procedures, both in the theoretical literature on fairness, and in experiments regarding actual human behavior. Finally, I suggest an alternative way of understanding the puzzling behavior of humans in economic experiments, based on the potentially conflicting norms of individual property rights and social sharing. Many modern theories of fairness essentially amount to promoting an efficient mix of these two norms.

The Middle Class and the Swedish Welfare State
Article (with peer review)Publication
Bergh, A.
Publication year

2007

Abstract

The Swedish welfare state is becoming more generous, not to the poor, but to the middle class. However, because the standards methods used to quantify redistribution are inadequate, most welfare-state scholars in economics, sociology, and political science have not noticed this development.

Show more