DP15641 A political economy of loose means-testing in targeted social programs
|Author(s):||Helmuth Cremer, Justina Klimaviciute, Pierre Pestieau|
|Publication Date:||January 2021|
|Keyword(s):||Political Support, Redistribution paradox, Targeted transfers|
|JEL(s):||D72, H23, H50|
|Programme Areas:||Public Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=15641|
This paper studies the political sustainability of programs that are targeted towards the poor. Given that the poor to whom these programs cater do not constitute a majority, we show that for their own good it pays to let the middle class benefit from them in a random way. This approach mimics the actual institutional arrangements whereby middle-class individuals feel that they can successfully apply to the programs. We consider a two stage decision process: first a Rawlsian government chooses the probability at which the middle class is allowed to benefit from a given program; then, majority voting determines the level of benefit and the rate of contribution. At the first, constitutional stage, the government cannot commit to a specific level of taxes and benefit but anticipates that these are set by majority voting in the second stage.