Ruhr Economic Papers

Ruhr Economic Papers #214

Inattentive Voters and Welfare-State Persistence

by Christian Bredemeier

TU Dortmund, RGS Econ, 10/2010, 46 S./p., 8 Euro, ISBN 978-3-86788-247-7



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 the persistence of the welfare state. 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 agentsā€˜ attentiveness to changes in economic fundamentals. When welfare-state arrangements are pronounced, agents realize changes in economic fundamentals later and reforms have considerable delays.

JEL-Classification: D72, H55, D83

Keywords: Welfare state; voting; imperfect information