Introduction The quotes that open this Chapter are clear statements of principle by pioneers working on similar issues in different times and locations. The mix of social policies in Europe today, however, fails on both criteria: they are uncoordinated, often conflicting, and far from simple to understand or implement. 2 Despite obvious interactions between economic integration and social-welfare provision, little is done at the central European Union level to bring social policies together and address countryspecific crises and integration challenges. The failure to provide guidance on the challenges facing social provision at the country level, in light of the removal of economic borders across the Union, exposes European policies to the twin risk of inertia on the one hand, and uncoordinated and unsustainable reforms on the other. In what follows, we document the current situation and analyze the reform pressures in the new united Europe. We argue that cur

A persistent controversy in the economics of higher education is the distributional consequences of tuition-fee subsidies. There are two points at issue. First, subsidies affect income distribution between rich and poor households, analyzed by cross-sectional studies. Second, there may also be long-run e#ects on income distribution, i.e., toward graduates who benefited from public higher education and away from non-graduates who contributed their taxes to finance these subsidies. This paper focuses on whether it is in the interest of the non-graduates to subsidize investments in higher education. We show that subsidies to higher education may be Pareto-superior, benefiting all agents rather than the minority of graduates alone. However, it is also likely that e#ciency gains cannot be distributed among all agents if a large fraction of agents uses subsidies to reap windfall gains. Windfall gains occur because of the unavailability of agents' endowments and are identified as the main cause of unwanted distributional e#ects between graduates and non-graduates. Nevertheless, it would be possible to establish a voluntary graduate tax that works as a revelation mechanism and, consequently, breaks down the equity-e#ciency trade-o#.

A persistent controversy in the economics of higher education is the distributional consequences of tuition-fee subsidies. There are two points at issue. First, subsidies affect income distribution between rich and poor households, analyzed by cross-sectional studies. Second, there may also be long-run effects on income distribution, i.e., toward graduates who benefited from public higher education and away from non-graduates who contributed their taxes to finance these subsidies. This paper focuses on whether it is in the interest of the non-graduates to subsidize investments in higher education. We show that subsidies to higher education may be Pareto-superior, benefiting all agents rather than the minority of graduates alone. However, it is also likely that efficiency gains cannot be distributed among all agents if a large fraction of agents uses subsidies to reap windfall gains. Windfall gains occur because of the unavailability of agents' endowments and are identified as the main cause of unwanted distributional effects between graduates and non-graduates. Nevertheless, it would be possible to establish a voluntary graduate tax that works as a revelation mechanism and, consequently, breaks down the equity-efficiency trade-off.

In the advanced economies, a substantial fraction of total income is regularly transferred from the better off to the less well off, with the approval of the electorate. Economists have for the most part misunderstood this phenomenon due to their endorsement of an empirically implausible theory of selfish human motivation. Understanding why citizens regularly vote for parties endorsing redistributive policies requires a reconsideration of the behavioral assumptions of economics. We find that voters support the welfare state because it conforms to deeply held norms of reciprocity and conditional obligations to others. JELcodes D30, D72, I30. A man ought to be a friend to his friend and repay gift with gift. People should meet smiles with smiles and lies with treachery. inThe Edda, a 13th century collection of Norse epic verse. The modern welfare state is one of the more remarkable human achievements. In the advanced economies, a substantial fraction of total income is regularly transferred from the better off to the less well off, and the governments which preside over these transfers are regularly reelected by publics that strongly endorse redistributive ethics. While the extent of the effect of redistributive programs on the eventual distribution of living standards is difficult to determine (because the counterfactual state is unobserved), there can be little doubt that the considerable support for the modern welfare state even among the well-to-do constitutes the most significant case in human history of a substantially voluntary egalitarian redistribution of income among total strangers. 1 We think that economists have for the most part misunderstood this phenomenon due to their endorsement of an empirically implausible theory of selfish human motiva-

the determinants of labour market institutions:

This Discussion Paper is issued within the framework of IZA’s research area The Welfare State and Labor Markets. Any opinions expressed here are those of the author(s) and not those of the institute. Research disseminated by IZA may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent, nonprofit limited liability company (Gesellschaft mit beschränkter Haftung) supported by the Deutsche Post AG. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. The current research program deals with (1) mobility and flexibility of labor markets, (2) internationalization of labor markets and European integration, (3) the welfare state and labor markets, (4) labor markets in transition, (5) the future of work, (6) project evaluation and (7) general labor economics. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. IZA Discussion Paper No. 168

(Under the direction of James Stimson) This dissertation seeks to explain changes in income inequality since 1947 in the United States. The emphasis is on how government influences the distribution of income. The theoretical foundation of this work is a combination of the power resources theory of the welfare state and the macro politics model of the U.S. governing system. By bringing these two theories together, one of which has its roots in comparative political theory and the other of which developed in the American context, I am able to provide a more comprehensive understanding of how political choices influence distributional outcomes in the United States. Using time series data from 1947-2000 the dissertation argues that government uses at least two major mechanisms to influence distributional outcomes – explicit redistribution and the manipulation of economic opportunity. The quantitative analysis supports the conclusion that explicit redistribution, which is the most commonly considered government influence on income inequality, is only a part of the picture. In fact, governmental manipulation of economic opportunity appears to be at least as important. Most importantly, this analysis shows that distributional outcomes are responsive to ideological changes in public policy.

Abstract: We analyse how the welfare state, i.e., social insurance that works through redistributive taxation, should respond to increases in risks and to increases in the cost of operating the welfare state. With respect to risks, we distinguish between risks that can be insured and such that cannot (background risks). Insurable risks can be reduced by costly individual selfinsurance and by costly social insurance. We show: (i) Self-insurance will be higher the more costly is the welfare state and the larger are background or insured risks. (ii) Full social insurance can only be optimal in a costless welfare state. (iii) The optimal welfare state is not necessarily larger the less costly it is. (iv) The welfare state need not optimally expand when risks increase that it insures. (v) It should, however, expand when risks increase that it does not insure. JEL-classification: Keywords:

The mobility of labor reduces national incentives to invest in internationally applicable education. Such e¤ects may be especially severe for the prospective new member states of the European Union. The European Union could overcome this by allowing countries to institute graduate taxes or income-contingent loans, collected also from migrants. This paper presents calculations on how such a system could look like for Finland, as well as discusses its implementation. Such contracts could be voluntary, education …nanced publicly only for those accepting also to share the returns. With EU enlargement, such reforms could generate a triple dividend.

prepared for the UNRISD project on