The Unfunded Unbalanced Welfare State System: An Unpleasant Redistributive Arithmetic

The paper analyses the short and long-term redistributive effects associated with a Welfare State System (WSS) that initially produces an intergenerational redistribution benefiting elderly per-sons of the current generation and modifies the degree of redistributive inequality in favour of the less well-off. It is shown that the introduction of the WSS produces in the long run an “unpleasant” redistributive outcome: the degree of relative distributive inequality increases, to the advantage of the rich compared with the initial period when the WSS was introduced. This is because the rich arrange bequests for their children, while the poor use redistributive policy to overcome the legal constraint preventing them from arranging “negative” bequests.