Postwar changes in the income position of the aged

Since the war the relative number of aged persons with income from employment has declined, while the proportion with income from social insurance benefits has increased. Despite the fact that social insurance benefits yield a lower average income than do earnings, the averaged aged person's income in 1952 was higher in both current dollars and dollars of stable purchasing power than it was in 1945. The improvement is the result of several factors, including larger earnings by aged workers, increased benefits paid retired workers and their aged survivors under social insurance and related programs higher old-age assistance payments and the rise in the relative number of persons with money income. The growth in the average aged person's income, however, has been at a rate lower than that of the average income of the population as a whole. As a result the average person has had a smaller share in total consumer income in each of the years since 1945 that he had in that year.     

Inter-regional redistribution through infrastructure investment: tactical or programmatic?

In this paper we study the political economy of the inter-regional allocation of investment in infrastructure, in an effort to disentangle tactical and programmatic motives, where tactical politics refers to the discretionary allocation of investment to districts with more ‘political clout’ and programmatic politics refers to the allocation of investment according to certain ‘objective’ criteria (e.g., income level). We use a panel of data from the Spanish electoral districts for the period 1964–2004 to estimate an equation in which investment depends both on economic and political variables. The results show that tactical politics do matter since the districts receiving the most funds are those in which: (i) the incumbent’s vote margin is low, (ii) few votes are needed to win an additional seat in the legislature, (iii) the central and regional governments are controlled by the same party, and (iv) regional parties play a pivotal role in the legislature. However, the results also show that programmatic politics matter, since inter-regional redistribution is shown to increase: (i) with the arrival of democracy and European Union funds, (ii) under leftist governments, and (iii) the weaker the correlation is between ‘political clout’ and regional income.     

The erosion of retiree health benefits and retirement behavior: implications for the disability insurance program

The effects of retiree health insurance on the decision to retire have not been examined until recently. It is an area of increasing significance because of rising health care costs for retirees, the uncertain future of Medicare, and increased life expectancy. In general, studies suggest that individual retirement decisions are strongly responsive to the availability of retiree health insurance. Early retiree benefits and retirement behavior are also important because they may affect the Social Security Disability Insurance (DI) program. It is not apparent that if a person loses retiree health benefits, or if fewer people are eligible for retiree health benefits in general, claims for DI will increase. The potential 2-year loss of health benefits may be a deterrent to leaving the labor force and claiming DI, although persons who are unable to work would leave the labor force even without health benefits. In order to understand how the decline in retiree health benefits may affect enrollment in DI, analysts must at least incorporate the role of coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). That act provides many people with access to health insurance during the 2-year gap between eligibility for DI and Medicare. In fact, persons with sufficient means to retire early could use the income from Disability Insurance to buy COBRA coverage during the first 2 years of DI coverage. Determining the effect of the erosion of retiree health benefits on DI must account properly for the role of other factors that affect DI eligibility and participation. The financial incentives of Social Security, pension plans, retirement savings programs, health status, the availability of health insurance, and other factors influencing retirement decisions must be taken fully into account in order to isolate the precise effect of retiree health benefits.     

The Characteristics of Countries with Generational Account Imbalances

This article empirically tests competing explanations for intergenerational policy differences using a cross section of generational accounts from Kotlikoff and Leibfritz (1999). Generational imbalance rises when a public transfer program is created that benefits living generations and harms future generations. Generational imbalance is greatest in countries with a large elderly population, high income growth rate, greater income inequality, and dispersed political parties. The results are consistent with successful rent seeking by the elderly and poor, and suggest that countries with a high income growth rate and coalition government are less able to resist intergenerational redistribution.     

TILTING TOWARD MARKETIZATION: Reform of the Canadian Pension Plan

Public concern about the earnings‐related Canada Pension Plan has forced the Canadian government to move toward fuller funding, a new investment policy, and changes to benefits and administration. Together, the three initiatives, and particularly the first two, amount to a modest degree of marketization. The assumption behind the reform is that the Canada Pension Plan will remain public and mandatory but the change will create a board and an investment policy which are more sensitive to market pressures and less amendable to government interference. The Canada Pension Plan is one of three tiers of support for the elderly in retirement. It is a contributory social insurance scheme which protects against loss of income. The other two are a social allowance (Old Age Security) as well as an income tested benefit (Guaranteed Income Supplement) which provide basic income support and employment based retirement pension plans as well as group and individual registered retirement savings plans which supplement the other two tiers on a voluntary basis. This article examines the reform of the Canada Pension Plan. After a brief examination of Canada's retirement benefits in an international context, the article summarizes recent debates in Canada, government policies to develop fuller funding and new investment strategies, and reflections on possible developments in the future.     

Income Inequality and Demand for Redistribution: A Multilevel Analysis of European Public Opinion

This article employs multilevel modeling to assess the importance of income inequality on the demand for redistribution in a sample of 22 European countries. According to standard political economy models of redistribution – notably the Meltzer-Richard model – inequality and demand for redistribution should be positively linked. However, existing empirical research has disputed this claim. The main advantages of this article is that demand for redistribution is measured at the individual level, and that the relevant interaction between inequality and own income is considered. The main findings are that inequality is positively associated with demand for redistribution, and that the median income person is sensitive to the level of inequality. These findings are robust to the inclusion of a range of relevant control variables. The results are relevant in relation to the increase in inequalities in many European countries, and especially relevant to the current debate about the importance of directly observable differences in public preferences for social policy outcomes.     

Incomplete information,income redistribution and risk averse median voter behavior

This paper extends the median voter model to include risk aversion. An expected utility maximizing median voter with an aversion to risk may behave differently than a median voter who is certain. A referendum on income redistribution from the top of the distribution to the bottom which fails when the median voter is certain may pass in the extended median voter model. Economic inefficiencies and the net losses accompanying redistribution are shown to play a pivotal role in determining the behavior of the risk averse median voter. The model is illustrated using a one percent Demogrant redistribution. The major motive for government income transfers in the modern world, and in fact throughout history, is simply that the recipients of the money would like to get it and they have the political power ... to implement their desires. Gordon Tullock (1983: 2) Because political transfers seem to violate the standard Pareto norms, we have tended to opt out of any discussion and to say that nothing further can be constructed on the basis of individual evaluations. Once the franchise has been extended to all adults, and once the constitution has allowed income transfers to take place collectively, the formal act of transfer becomes fully predictable from positive economic analysis. The basic property right inheres in the voting franchise ... James M. Buchanan (1984: 187)     

Disability benefit coverage and program interactions in the working-age population

Over three-fourths of the working-age population in the United States is insured for Disability Insurance (DI); this group is protected against a total loss of earned income typically associated with severe disability. However, little is known about the role the Supplemental Security Income (SSI) program plays in protecting against the financial consequences of severe disability for this population. We find that over one-third (36 percent) of the working-age population is covered by SSI in the event of a severe disability. Three important implications follow, which we discuss in sequence below: (1) SSI increases the overall coverage of the working-age population; (2) SSI enhances the bundle of cash benefits available to disabled individuals; and (3) interactions with other programs also enhance the safety net, most notably in the area of health insurance coverage. Ignoring these implications could lead to inaccurate inferences about disability program coverage, health insurance coverage, and the well-being of working-age individuals with disabilities. The first major finding is that SSI substantially increases overall cash benefit coverage. Thus SSI dramatically increases protection against the financial risk of disablement in the working-age population. While roughly 23 percent of the U.S. working-age population was not insured for DI in November 1996, SSI provides coverage for more than half of this seemingly "uncovered" population. An important innovation of our analysis is that we account for the possibility that many of those who appear ineligible for SSI based on current income could become eligible as a result of a disability shock that causes their earnings to drop. Thus the estimated proportion that is protected by SSI increases when the possibility of earnings loss because of disability is considered. Considering DI and SSI together, roughly 90 percent of the working-age population would be potentially covered for benefits in the event of a disability. Those who are covered by SSI--as opposed to those covered by DI alone-tend to be relatively young, less educated, and in relatively poor health. The remaining 10 percent or so are not covered by either DI or SSI. This group is economically vulnerable in some sense (they are poorer, older, and more likely to be women than those covered only by DI), but they are not as economically vulnerable in terms of income, resource holdings, and private health insurance coverage as those who are eligible for SSI. A disproportionate share of those who are not covered by either DI or SSI consists of married women. The second major finding is that SSI substantially enhances the bundle of available cash benefits. Roughly one-third of those covered by DI are initially covered by SSI as well. SSI enhances the bundle of available cash benefits through two mechanisms: (1) SSI provides cash payments during the 5-month DI waiting period, and (2) SSI supplements the DI benefit after the DI waiting period for people whose initial SSI payment is larger than the DI benefit. We find that the role of SSI cash payments is temporary for most of those who are initially covered by both SSI and DI: They would receive SSI during the DI waiting period, but would lose SSI eligibility afterwards because the higher DI benefit completely offsets the SSI benefit. However, a smaller group of DI beneficiaries with low DI benefit levels would continue to be covered by both SSI and DI after the DI waiting period because the relatively low DI benefit would not completely offset the SSI benefit. The third major finding is that interactions with other programs also substantially enhance the safety net. The most important interactions involve health insurance coverage. In the working-age population, Medicare is available to DI beneficiaries, but only after a 24-month waiting period. By contrast, SSI is an important pathway to Medicaid benefits for severely disabled adults with limited income and resources and has no waiting period. SSI can provide a pathway to health insurance coverage during the 24-month Medicare waiting period for some DI beneficiaries through providing access to Medicaid. Interactions with other programs, such as Temporary Assistance for Needy Families (TANF), Food Stamp, Unemployment Insurance (UI), workers' compensation (WC), and veterans' disability programs, modify the role of DI and SSI in protecting people against the adverse financial effects of disablement. The nature of the interactions with other programs differs depending on individual circumstances. Employment-related programs (including UI, WC, and veteran's disability programs) are particularly important for those who are covered by DI. By contrast, the means-tested programs (including TANF and Food Stamp) are more important for those who would be eligible for SSI. In conclusion, SSI plays a substantial role in protecting working-age people against the adverse financial consequences of disablement through three mechanisms: (1) providing coverage to many who are not DI insured; (2) providing additional cash benefits to many who are DI insured and also covered by SSI; and (3) enhancing the social safety net by interacting with other programs, most notably Medicaid. Through these mechanisms, the role of SSI is substantial enough that it cannot be safely ignored in econometric and policy research on DI.     

Inequality, the politics of redistribution and the tax mix

Political economy literature generally predicts a positive relationship between income inequality and redistribution. However, there is no clear empirical evidence supporting such a relationship. By incorporating an informal sector that evades income taxes, we account for the tax-base effect that, along with the political channel, determines the equilibrium redistribution and tax mix. We find a non-monotonic relationship between inequality and redistribution and explore under which conditions an unequal society relies more heavily on indirect taxes to finance redistribution. Ultimately, this paper shows the limitations of the income tax to finance redistribution in developing countries even when taxes are democratically chosen.     

Institutional conditions for the integration of immigrants in welfare states: A comparison of the literature on Germany,France, Great Britain,and the Netherlands

Abstract. In this paper we analyse the literature on a particular aspect of immigrant integration in Western European welfare states: the extent to which this can be explained by conditions set by institutions, social rights and rights of residence. Our focus is on health care, old age insurance, housing and vocational training, and on the circumstances under which migrants have access to benefits from the general systems of social security. In particular, the assignment of a legal position by the rights of residence plays an essential role. The various legal groups have access to social benefits depending on their status of residence. The institutional framework of each welfare states is also relevant to the access that people have to social benefits. In the countries analysed, Germany, France, Great Britain, and the Netherlands, the individual security systems are organised according to different political concepts, each of them allowing immigrants access to their benefits to a different degree. On the whole, the degree and kind of governmental regulations seem to be crucially important for the integration of immigrants into the welfare state.     

Voting over Redistribution and the Size of the Welfare State: The Role of Turnout

Theories of redistribution inspired by the Downsian model receive little support from empirical investigation. In this article I argue that one of the possible explanations is that the standard Downsian theory, and the empirical specifications derived from it, ignore electoral turnout. Empirical evidence consistently shows that higher-income citizens are more likely to vote; office-seeking candidates should therefore include this probability in their objective function. As a consequence, the pivotal voter is not the median in the income distribution, but is generally richer. Moreover, an increase in income inequality does not unambiguously increase the political demand for redistribution, as most literature takes for granted. Including turnout in the model restores the compatibility of the Downsian theory with current empirical evidence. A regression analysis on panel data for 41 countries in the period 1972–98 confirms the importance of turnout as an explanatory variable for social spending.     

Economic security, 1935-85

The economic well-being of both working and retired persons has improved significantly since the Social Security Act was passed in 1935. More people are employed now than at any time since then, despite declining employment among the aged and more years of school attendance among the young. The ratio of non-workers to workers--a broad measure of dependency--is lower now than at any time since the 1930's. Social security has grown and matured to become a strong foundation of retirement income, and other work-related employee benefits have grown in tandem with social security. Employer contributions for social insurance and related employee benefits have grown from being about a 1-percent supplement to aggregate wages and salaries in 1929 to nearly 20 percent today. Social security and Medicare account for just over a fourth of employer contributions, while other public and private retirement systems represent just over another fourth. The balance of benefits for active workers includes group health and life insurance, unemployment insurance, workers' compensation, temporary disability insurance, and related benefits. Pay for holidays, vacations, and sick leave is estimated to have increased from less than 1 percent of aggregate pay in 1929 to about 10 percent today. The improved economic status of the aged has been documented by a series of surveys beginning in 1941-42 and carried out from time to time until 1972 and biennially since 1976. The earlier surveys were supplemented with estimates from record data and tables from the Bureau of the Census. The income of the aged as a whole has grown by about 75 percent over the past 2 decades after taking inflation into account. The income of the aged as a whole grew faster than that of the nonaged in the 1970's and early 1980's when real social security benefits increased faster than inflation and wages lagged behind it. New beneficiaries in 1982 were in better health and were more likely to retire because they wanted to than was true of their counterparts in the early 1940's. Not only have benefits continued to be the main component of income of the aged as total incomes have grown, but also benefits have become much larger in relation to average earnings than used to be the case. Retired workers are much more likely now than in the early 1940's to have other pensions or income from assets to supplement benefits.(ABSTRACT TRUNCATED AT 400 WORDS)     

Scraping by: Income and Program Participation After the Loss of Extended Unemployment Benefits

Many Unemployment Insurance (UI) recipients do not find new jobs before exhausting their benefits, even when benefits are extended during recessions. Using Survey of Income and Program Participation (SIPP) panel data covering the 2001 and 2007 to 2009 recessions and their aftermaths, we identify individuals whose jobless spells outlasted their UI benefits (exhaustees) and examine household income, program participation, and health‐related outcomes during the six months following UI exhaustion. For the average exhaustee, the loss of UI benefits is only slightly offset by increased participation in other safety net programs (e.g., food stamps), and family poverty rates rise substantially. Self‐reported disability also rises following UI exhaustion. These patterns do not vary dramatically across household demographic groups, broad income level prior to job loss, or the two business cycles. The results highlight the unique, important role of UI in the U.S. social safety net.     

The political economy of targeting

One of the most widely used method of targeting is to reduce welfare benefits as income rises. Although the need for such targeting is clear enough, it also entails two important difficulties. Firstly, the prospect for the recipients of losing part of their benefits if they were to earn more can be a deterrent to work harder. Secondly, by reducing the number of recipients, targeting reduces the political support for taxation and redistribution. The purpose of this paper is to study the voting equilibrium of the degree of targeting and the level of taxation in an economy where labour supply is variable. The analysis reveals that targeting may be fatal for redistribution even though it rejects strictly less than the richest half of the population, and that it is not possible for a coalition of the extremes to form and reject the middle income group from the welfare system. Moreover, because targeting affects labour supply, we find that Pareto improvements are possible when targeting is either “too low” or “too high”. We also find that voting simultaneously over taxation and targeting is favourable to the poor in the sense that they can converge to their most-preferred policy by successively forming a majority coalition with the rich to increase targeting and with the middle to increase taxation.     

A political economic analysis of labor migration and income redistribution

We present a two-country political economic model of income redistribution with internationally mobile labor. Migration can be exogenous and/or endogenous (i.e., determined by labor income differentials). Political influence is determined by the size and homogeneity of the groups, where the latter can be affected by immigration. We show that immigration can increase the transfers to, and the income of, the mobile group. We also investigate the possibility of migration regulation, tax-transfer policy competition and coordination and, finally, coordination of regulation policies. It is shown that the selection of any of those regimes will depend on the particular distribution of political influence among the relevant social groups in the two countries.

     

Informal Service Access in Pro-Cyclical Welfare States: A Comparison of Electricity Theft in Slums and Regular Residential Areas of Montevideo

Abstract

It is often thought that political incumbents in developing countries abandon the poor during economic crises because of narrow and pro-cyclical welfare policies. In contrast to that view, this article argues that informal transfers for those excluded from the welfare state represent an example of “social policy by other means”. During dire economic conditions, democratic incumbents, who need the support or acquiescence of dislocated groups, expand irregular access to the electricity service counter-cyclically. Comparative time series data from slums and residential areas of Montevideo show that electricity losses respond to the political provision of both informal social insurance and informal redistribution.     

General interest and redistribution with self-interested voters: Social contract revisited

I provide a rational solution to the lasting paradox that citizens be more concerned with “general interest” than most economic agents. I show who that, in the face of fundamental political uncertainty, the social contract, as conceptualized by Jean-Jacques Rousseau two centuries ago, provides to self-interested voters an effective mechanism of self-insurance that limits amount of involuntary transfers. My positive theory of voter behavior and general interest has but a formal resemblance with the normative theory of welfare judgments and social justice. Even when the efficiency aspects of redistribution are not considered, there is no way in which the final distribution of incomes could be equal if the initial distribution of incomes were unequal! The role of political parties in this model is to manipulate the distribution of political chances in order to maximize their probability of winning elections. I show for instance that “social instability” and progressive redistribution characterize the equilibrium outcome of a two-class democracy in which the lower class forms a majority.     

Trust in government and welfare regimes: Attitudes to redistribution and financial cheating in the USA and Norway

Abstract. Claims have been made that national institutions influence public preferences, as well as structuring patterns of social division. This article analyses attitudes to redistribution and financial cheating in Norway and the USA. On the aggregate level the results show that there are striking differences between the two countries regarding attitudes to redistribution and confidence in the state, while similar attitude patterns are found regarding cheating with taxes and benefits. Results endorse arguments emphasising that the design and scope of welfare state policies shape and determine their own legitimacy. There is less support for political trust arguments, which emphasise that the efficacy of political decision–making institutions promotes beliefs about trust in the state and views on government responsibilities. Similarly, arguments proposing that advanced welfare statism has undesirable effects on civic morality, such as cheating on taxes and benefits, are not supported empirically. Finally, while conflicts over redistribution are similarly structured in the USA and Norway, divisions over financial cheating are less clear–cut and vary cross–nationally.     

Health insurance in a democracy: Why is it public and why are premiums income related?

Many democracies have public health insurance systems which combine redistribution from the rich to the poor and from the healthy to the sick. This paper shows that such systems can be in the interest of the poor and the rich from a constitutional perspective. Necessary conditions are that insurance markets are incomplete and that income inequality is neither too low nor too high. Then even the rich can prefer a public health insurance system financed by income-dependent contributions compared to a system financed by a flat fee or a private health insurance system.