14. The Economics of Welfare State. Экономика государства всеобщего благоденствия.

Modern governments, especially in wealthy countries, devote a large chunk of their budgets to health care, income support for the elderly, aid to the poor, and other programs that reduce economic insecurity and, to some degree, income inequality. Welfare state is the collection of government programs designed to alleviate economic hardship (income inequality by poverty programs + economic insecurity by social insurance programs).

Measuting indicators: Poverty threshold, poverty rate (% of population with incomes below poverty treshold), the poverty threshold (annual income below which a family is officially considered poor), mean household income (the average income across households), median household income (the income of the household lying at the exact middle of the income distribution) and Gini coefficient (country’s level of income inequality) are indicators that measure the welfare of the state.

US: Programs: Means-tested programs (those for individuals whose incomes fall below certain level) are designed to reduce poverty, but in practice non-means-tested programs do so as well. Programs are classified according to whether they provide monetary or in-kind benefits (in the form of goods or services). “Welfare,” now known as TANF, aid to poor families with children, is far less generous today than a generation ago due to concerns about its effect on incentives to work and family breakup. The negative income tax addresses these concerns: it supplements the incomes of only low-income working families.

Social Security, the largest program in the U.S. welfare state, is a non-means-tested program that provides retirement income for the elderly. It provides a significant share of the income of most elderly Americans. Unemployment insurance is also a key social insurance program.

The effect of government programs was to increase the share of income going to the poorest 60% of the population, especially the share going to the poorest 20%, while reducing the share of income going to the richest 20%.

Health insurance satisfies an important need because expensive medical treatment is unaffordable for most families. Private health insurance has an inherent problem: the adverse selection death spiral. This problem can be overcome by employment-based health insurance (most americans are covered with it).

The majority of Americans not covered by private insurance are covered by Medicare, which is non-means-tested and applies only to those age 65 and older, and Medicaid, which is available to those with low income.

The United States differs from other wealthy countries in its heavy dependence on private health insurance and its high health care spending per person. Some countries, such as Canada, have a singlepayer system (health care system in which the government is the principal payer of medical bills funded through taxes).

The high marginal tax rates (higher tax rate for each newly earned dollar) needed to finance an extensive welfare state can reduce the incentive to work. Holding down the cost of the welfare state by means-testing can also cause inefficiency through notches that create high effective marginal tax rates for benefit recipients.