Voters’ commitment problem and reforms in welfare programs

Under which conditions do vote-seeking governments pursue reforms in welfare programs that are unpopular among the median voter and that, consequently, likely lead to a loss of votes? This paper proposes reforms may result from a commitment problem of voters between elections. Due to economic voting voters cannot credibly commit to re-elect a non-reforming government during a recession. This study uses a game-theoretical model to investigate what happens when the medianvoter in a multi-period election game can no longer condition re-election perfectly on the actions of the incumbent government. The model shows that multiple equilibria may emerge, including one with the incumbent government reforming during bad economic circumstances and not reforming during good times. The voter commitment mechanism can hereby rationalize the theoretically puzzling empiricalphenomenon that governments reform welfare programs amidst reform-averse voters. Our theoretical prediction that they do under economic lows is in line with existing empirical work.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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