Working Paper: NBER ID: w18588
Authors: Lee J. Alston; Marcus Melo; Bernardo Mueller; Carlos Pereira
Abstract: Social contracts about inequality and redistribution are country-specific. We rely on a model of inequality and redistribution where multiple steady states can emerge in given country. We link the model to the recent literature on beliefs and argue that beliefs are a major determinant of which equilibrium results. We show that changes in beliefs may shift the equilibrium in a country over time. We present evidence that beliefs are typically very stable over time, yet argue that Brazil has recently undergone a dramatic shift in beliefs which we show is associated with a change in the country's social contract in the past thirty years. The transition from one social contract to another has taken place through a process which we call 'dissipative inclusion', where redistribution and social inclusion are effectively achieved but accompanied by distortions, inefficiencies and rent dissipation.
Keywords: No keywords provided
JEL Codes: O10; O43; P51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| changes in beliefs (Z12) | equilibrium level of inequality (D63) |
| changes in beliefs (Z12) | redistribution policies (H23) |
| belief in social inclusion (Z13) | increased social spending (H53) |
| belief in social inclusion (Z13) | redistribution policies (H23) |
| punctuated change in beliefs (D80) | shifts in social contracts (P37) |