Changing social contracts: Beliefs and Brazil

Alston, Lee J., Melo, Marcus Andre, Mueller, Bernardo, and Pereira, Carlos-Changing social contracts: Beliefs and dissipative inclusion in Brazil We link a model of inequality and redistribution where multiple steady states can emerge, to the recent literature on beliefs, and argue that changes in beliefs may shift the equilibrium over time. We present evidence that beliefs are typically very stable over time, yet argue that Brazil has recently undergone a dramatic shift in beliefs which we show is associated with a change in the country's social contract in the past thirty years. The transition from one social contract to another has taken place through a process which we call 'dissipative inclusion', where redistribution and social inclusion are effectively achieved but accompanied by distortions, inefficiencies and rent dissipation. Journal of Comparative Economics 41 (1) (2013) 48-65. University of Colorado, United States; NBER, United States; Federal University of Pernambuco, Brazil; University of Brasilia, Brazil; Getulio Vargas Foundation - FGV - Rio de Janeiro, Brazil. (C) 2013 Association for Comparative Economic Studies Published by Elsevier Inc. All rights reserved.