Economic Analysis of Social Policies

Course overview and objectives
EASP studies the mechanisms of social protection that are at the core of the Welfare State using an Economics perspective. The course has three parts. The first part is a survey of basic results in Welfare Economics and Political Economy dealing with market failures, government policies and their failures. The second part deals with the distribution and redistribution of income and the measurement of inequality and poverty. The third part covers social policies: income maintenance, poverty reduction and pensions.
After taking this class students should be familiar with the main social policies in European countries and the political and economic forces that shape them. Studentsshould also be able to understand the goals, economic incentives, results and costs of the most important social policies in particular from the perspective of their impact on economic inequality and poverty. They should also be able to conduct inequalityand poverty studies using survey data.

Course Content
1. Introduction and motivation. The need for social insurance and a brief history of social institutions and policies. Some data on Social Protection in OECD countries.
2. Properties and failures of competitive markets. Government intervention. Values. Methodological individualism. Consumer sovereignty, admissibility of preferences and paternalism. Merit goods.Specific egalitarianism. Altruism.
3. Government and the redistribution of the income. Equity vs. efficiency. Social Welfare Functions.Three positive perspectives on redistribution: expropriation, altruism and insurance. The political economy of income redistribution. Public Provision of private goods and the socialization of commodities.
4. Distribution of Income: Data, unit of analysis. Instrumentos and measures of inequality.
5. Relative, absolute and subjective poverty. Measures of poverty. Poverty Dynamics.
6. Recent developments in measurement: Happiness, Inequality of Opportunity.
7. Consumption and Wealth. Indices of inequality: Distribution of wealth and the life cycle. The intergenerational transmission of inequality.
8. Poverty alleviation. Income maintenance programs. Universal programs versus categorical programs. Non take-up of programs and welfare stigma. Distribution in-kind versus distribution in money: paternalism or selection mechanism? Effects on labor supply, savings and investment in human capital.
9. Aging. Methods of demographic analysis. Mortality and birth rates. Mortality tables. Life expectancy. Dependency ratios. General implications of aging for social policy.
10.Social Security: Old-Age. The life cycle model and individual behavior. Annuities and life insurance. Reasons for public provision. Insurance and its market failures. "Pay-as-you-go" vs. funding. Defined benefit vs. defined contribution. 
The social security paradox and the steady state rates of return. The implicit debt of social security. The maturation of pay-as-you-go systems. Social security reforms.

Required background
This course assumes that the students have studied intermediate Microeconomics (in particular competitive, monopolistic and monopsonistic markets, consumer theory, labor supply, risk aversion and intertemporal choice) and Statistics (descriptive statistics, confidence intervals and testing, regression analysis). A working knowledge of Excel is necessary for the group assignment.

Grading
The evaluation consists of two tests, non-cumulative each 40%, and a group assignment (20%). The group assignment will involve working with data to study income inequality and poverty in a quantitative fashion. Ideal group size should be 4.Absences from tests not due to hospital inpatient stays are equivalent to a grade of zero. 
The review and regrading of tests requires a written request

Bibliography
The lectures and lecture slides are mostly self-contained. References are useful mostly for those who want to study specific topics more in depth. The references most relevant for each topic will be given in class. Two nice general references are:
• Barr, N., The Economics of the Welfare State, (6th Edition), (Oxford: University Press, 2020).
• Hindriks, J and G.D. Myles Intermediate Public Economics. (Cambridge: MIT Press, 2013)