TAILIEUCHUNG - Social Insurance With Indirect Democracy

Theoretical modeling of unemployment insurance (UI) has typically focused on the benefit level or the replacement rate, ., the fraction of earnings replaced by unemployment benefits. Of course, the design of an optimal UI system raises many other issues. For example, should there be a time limit on benefit receipt? To what extent should benefit recipients be induced to follow prescribed search requirements? Is there a case for a work requirement in exchange for benefits? The present paper contributes to the welfare analysis of UI by analyzing three different means of improving the efficiency of UI. The first instrument. | Social insurance with indirect democracy Stéphane ROSSIGNOL EUREQua University of Paris 1 and Emmanuelle TAUGOURDEAU EUREQua University of Paris h EUREQua université Paris 1 MSE 106-112 Bd de 1 hôpital 75647 Paris cedex 3 and université de Versailles-St-Quentin email rossign@ i EUREQua université Paris 1 MSE 106-112 Bd de 1 hôpital 75647 Paris cedex 3 email taugour@ 1 Abstract In an indirect democracy model we determine the preferred social insurance system. We show that it corresponds to that which implies the lowest contribution rate. Keywords Social insurance Indirect democracy Nous déterminons le système de protection sociale optimal dans un modèle de democratic indirecte. Nous montrons qu il correspond à celui qui assure le taux de cotisation le plus faible. Mots clé Protection sociale Economic politique Democratic indi-recte JEL classihcation D7 H5 2 1 Introduction In this paper we show that the political rule can alter the choice of the social insurance system. The preferred social system is that which implies the lowest contribution rate. Indeed social expenditures have strongly grown these last decades and represent now a large part of the GDP of developed countries. It is crucial to adapt social insurance systems to this evolution. There are two main social systems which are characterized by a different logic solidarity for a Beveridgean system social benefits are identical for every agent individual insurance for a Bismarckian one social benefits are proportional to incomes . Then in a democratic country which one can be adopted It depends on political institutions especially direct versus indirect democracy and on the relative influence of different groups of the society. Alternative responses have already been proposed see for example Tabellini 2000 and Casamatta and alii 2000b . Conde-Ruiz and Profeta 2002 have shown that in a majority rule model the choice of the social security system depends on the income inequality in the

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