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 978-3-86788-247-7download
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 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.
JEL-Classification: D72, H55, D83
Keywords: Welfare state; voting; imperfect information