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Welfare Economics

Aravinda Guntupalli

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G overnment welfare spending in

developed and developing countries

Nita Rudra (2002) Globalization and the decline of the welfare states inLess-Developed countries. Industrial organization. Vol 56(2).

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Why is it important?

All nations are being challenged by the crucialtask of improving income, well-being andeconomic capabilities of people.

Every year aid is distributed, investments aremade, policies are framed, and elaborated plansare hatched to achieve this goal.It is always complex issue that is debated byeconomists, media, politicians and layperson.

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D ifferent topics

May 2 General discussion on welfareMay 9 Types of welfare states and history

May 16 Child welfareMay 23 Inequality and welfareMay 30 Gender and Welfare

Room 332 and Tuesdays 12:00-14:00

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Additional lectures

J une 13 (pclabor)We will work on SPSS and use data of WorldBankRegression analyses

J uly 4th (Discussion on special problems withanalyses of the data)

Office hours (Wednesday 2 to 4) Room 422

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FAQ ( Frequently Asked Q uestions)

Open an account in the PC labor as soon aspossible to have access to computers for J uneThe course has 4 point weightWe will have to give both assignment and apresentation for 10 minutesBrushing up your old statistics lectures would

help you analyze the dataLanguage of the course, presentation and theexam is English

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P resentation and Assignment

Presentation datesSaturday and Sunday ( J uly 22 and 23 ???)

AssignmentDeadline for the submission is 29 th J uly

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V arious topics

Does a GDP growth rate reduces poverty?How to measure Welfare?Welfare in Germany from 1900 onwards

Great divergence (Asia, Ottoman Empire andEurope)Child welfareEmployment of the womenFertility and welfare: Is there a relation?

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C ontd

Age structure and its impact on welfare (if any)Missing women concept (declining sex ratio in some

Asian countries)Health and welfare relationGender differences in education, and health (specialemphasis on Germany)Latin American inequality and its relation to welfare

Democracy and welfareMigrants and their welfare

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www.uni-tuebingen.de/uni/wwl/meera.html

Dont hesitate to send me an email if

you have doubtsaravinda-meera.guntupalli@uni-tuebingen.de

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H ow to define and measure

welfare? Aravinda Guntupalli

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D efinition of welfare

Welfare refers to the economic well being of an individual, group, or economy.For individuals, it is conceptualized by a utilityfunction.For groups, including countries and the world,it is a complex concept, since individuals faredifferently.

In trade theory, an improvement in welfare isoften inferred from an increase in realnational income.

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C ontemporary measurement

Measurement of economic developmentGNP and GDPHuman Development Index (HDI)

InequalityLorenz curveGini concentration ratio

PovertyBoth Absolute and relative income are important

Measurement of povertyPoverty linePoverty head count

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C omplexity of welfare measurement

(Tata and Schultz, 1988)Physical systemthe total value of primary industry output per capita and population

per square kilometer of arable land.E conomic system

GDP/capita and manufacturing value-added per capita are twocommon and useful measures of output in economic systemsS ocial system

A social system has the role in providing in situations for satisfying peoples needs, safety, security and humandevelopment.

As there are no direct measures for cross-country comparisonswe have to use proxy measures like infant death rates,percentage of highly educated people, and percentage of ruralpopulation.

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C ontd..

Political systemThe role of political system is to establish order, justice insociety and to manage human and physical resourcesefficiently.

We can measure it using various measures likedemocracy. (freedom house or polity data)Psychological measurement (???)

Happiness, good mental health and some psychologicalindicators also reflect the wellbeing of people

Gender differences in Welfare (?)Welfare of Children(?)

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GN H measure (Bhutan)

(BBC)

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Silver wages of unskilled labourers, 1500-1849(grams of silver per day )

0

2

4

6

8

10

12

14

16

18

1500-49

1550-99

1600-49

1650-99

1700-49

1750-99

1800-49

London

AmsterdamAntwerp

Paris

Barcelona

Leipzig

Istanbul

Source : Allen (2001 ), Broadberr y and Gupta (2005 )Istanbul f rom zmucur andPamu k (2002

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C onsumer prices in Europe, 1500-1799

(1500-49=100)

100

150

200

250

300

350

400

450

500

550

600

1500-49

1550-99

1600-49

1650-99

1700-49

1750-99

1800-49

London

Amsterdam Antwerp

Paris

Florence/Milan

Augsburg

Source : Allen (2001 ), Broadberr y and Gupta (2005 )

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Urban shares of the population, 1500-1850 (%)

1500 1600 1700 1800 1850 EuropeEngland & Wales 3.1 5.8 13.3 20.3 40.8

Netherlands 15.8 24.3 33.6 28.8 29.5Belgium 21.1 18.8 24.3 18.9 20.5France 4.2 5.9 9.2 8.8 14.5Spain 6.1 11.4 9.0 11.1 17.3Italy 12.4 15.1 13.2 14.6 20.3Poland 0.0 0.4 0.5 2.4 9.3Austria/Bohemia 1.7 2.1 3.9 5.2 6.7Germany 3.2 4.1 4.8 5.5 10.8Total Europe 5.6 7.6 9.2 10.0 16.7

Asia

Yangzi delta 5.6Total China 4.9 4.9 6.0 3.8

Note: Based on the percentage of the population living in towns of at least 10,000inhabitants.Source: Derived from de Vries (1984: 30, 36, 45); Rozman (1973: 282-283, 205-247).

See also Broadberry and Guptas research papers from Warwick

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H eight for measuring welfare

GDP and other statistical data are mostlyavailable for country level

Also there is paucity of information regarding

gdp of various countries before 1960Economic Historians employed the finding of human biologists that average (not individual)human stature was influenced by the quality

of nutrition, the disease environment andphysical exertion. (see papers by Baten,Komlos and Steckel)

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Baten and Wagner (2002)

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C lassification of economies

1996 World Bank income classificationLess than $785 per capita - Low income$785-$3115 - Lower Middle income

$3115 to $9636 - Upper middle incomeOver $9636 - High income economies

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GN P and GD P

The GDP is defined as the market value of allfinal goods and services produced within acountry in a given period of time.Until the 1980s the term GN P or grossnational product was used.The most common approach to measuringand understanding GDP is the expenditure

methodGDP = consumption + investment + government spending + (exports imports)

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L imitations

Poor quality statisticsDefinition - Goods and services that are sold in the market(unpaid work ????)Exchange rate problemsTo overcome this problem, common set of prices are used tomeasure output of every country (hair cut in India is priced thesame as on in the US)This measure of average income is called Purchasing Power Parity (PPP)

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C omplexity of welfare

When we talk about welfare we need to havea full consideration of taxes, subsidies,transfer programs, health care reform,

regulation, environmental policy, socialsecurity system, and educational reforms.Daniel Slesnick (Empirical approaches to themeasurement of welfare, J ournal of economicliterature, 1998)

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Social indicators for the early 1990s (GDP per capita, PPP)

< 1000$ 1000-2000$ 2000-5000$ 5000-10,000$ >10,000$

Infantdeaths/1000live births

107 73 33 30 6

Life expectancy 49 57 68 69 76Physicians per 1000

33 88 161 181 231

Energyconsumptionper capita

46 189 977 2029 4857

Adult literacy 52 60 85 83 96

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I mportant books

Human development report World development report Development economics Debraj Ray Hunger and Public action J ean Dreze and Amartya Sen Gender Equality and Welfare States Daine Sainsbury Growing Public: Social Spending and Economic Growth sincethe Eighteenth Century Peter Lindert The Gender Division of Welfare: The impact of the British andGerman Welfare States Mary Daly Women Welfare: Theory and Practice in the US andEuropeHirschmann and Ulrike Liebert

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Thank You