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On Inter- and Intra-Individual Redistribution of the Welfare State

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

Abstract

Objective. The redistributive effect of the welfare state is traditionally measured by comparing the gross and net distribution of annual income among adults. This standard approach does not account for the fact that a large share of the taxes paid by adults are paid back to the very same individuals later in life. The objective of this article is to examine the factors that determine the difference between redistribution according to the standard approach and redistribution of lifetime incomes. I also discuss under what circumstances intra-individual redistribution is beneficial for low-income earners.

Methods. A formal model of a simple welfare state in a society with low- and high-income earners is used to describe inequality of gross and net income among adults and for complete lifetime incomes. The model is calibrated with data describing the Swedish welfare state.

Results. Theoretically, the redistribution of lifetime income can be bigger or smaller than the redistribution indicated by the standard approach. Swedish data suggest that most welfare states are more redistributive when a lifetime perspective is used compared to the standard approach.

Conclusions. Most of the redistribution carried out by modern welfare states is so-called intra-individual redistribution. Compared to the situation that would arise without the welfare state, intra-individual redistribution is likely to be favorable for low-income earners because it compensates for inequalities in the distribution of assets and access to capital markets.

Bergh, A. (2005). “On Inter- and Intra-Individual Redistribution of the Welfare State.”Social Science Quarterly, 86: 984-995.

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.

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