A Dynamic Explanation of the Crisis of the Welfare State

Although the crisis of the Welfare State has been evoked for quite a long time, figures show that such a phenomenon has arisen only recently. Furthermore, it is not a common feature in all developed countries. This paper aims at explaining these two empirical facts. We use an overlapping generations model in which agents decide to educate themselves or not endogenously. Furthermore, at each date, the working population vote on the size of a redistributive policy. Firstly, we show that the share of the educated population can be the engine of the crisis of the Welfare State. Moreover, our paper emphasizes that the expectations of agents about the size of redistributive policies, can explain the timing differential in the crisis of the Welfare State between developed countries.