Inequalities, Insurance, Incentives and Immigration: Challenges and Solutions for the Welfare State

With ongoing fiscal retrenchment, we need to understand the consequences of welfare reform for the most vulnerable members of society. In the first strand of our project, we will therefore look at how the welfare state protects households from adverse shocks, as well as how it affects the relationship between material circumstances and well-being. We will assess the role of past changes in policy and in the socio-demographic and labour market conditions in explaining recent changes in income inequality, and we will assess the ability of current welfare states to reduce inequalities in the future. We will consider not only income inequality measured at a point in time, but also income mobility through the lifetime and between generations. Strand 1 will thus examine existing income inequality as well as how the tax and benefit system succeeds in insuring individuals against negative income shocks. In Strand 2 we will instead focus on citizens’ preferences for redistribution and the mix and level of welfare services. Specifically, we will investigate how these preferences are formed, and how long-term income expectations, as well as increased ethnic diversity, affect these preferences. The latter question is motivated by the discussion about a potential (so-called) “in-group bias” (where people are more generous towards those within their own group, or people with whom they identify). The work will be conducted using both country-specific data and methods from experimental psychology. Strands 1 and 2 above investigate the determinants and patterns of inequality and how citizen’s preferences for redistribution and welfare services are formed. In order to tackle inequality through redistribution and to supply welfare services, governments need to raise sufficient amounts of tax revenue in ways that are equitable and that do not impose too high costs for taxpayers. Researchers can help decision makers by providing reliable information about the distributional and efficiency effects of tax-benefit systems. Interestingly, changes in inequality also have repercussions on the extent of tax incentives. Strand 3 of our project addresses these issues by examining novel topics or using new, broader, techniques for studying some more conventional questions.