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The Single-Mindedness theory: micro-foundation and applications to social security systems

Canegrati, Emanuele (2006): The Single-Mindedness theory: micro-foundation and applications to social security systems.

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Abstract

The central purpose of this paper is to introduce a new political economy explanation to modern Social Security Systems. This approach is based on the Single-Mindedness Theory (SMT), which assumes that the more single-minded groups are able to exert a greater power of influence on Governments (and eventually obtain what they require) than those groups which dissipate their mindedness on several issues. Governments are considered as voting-maximizer policymakers, whose unique goal is winning elections. Using an OLG model and a probabilistic voting approach, I will analyse a society divided into two groups, the old and the young, which only dier for their preferences for leisure. I will show that, in order to win elections, the Government sets the optimal policy vector taking into account preferences for leisure of both groups; eventually, the old obtain a lower eective marginal tax rate and retire earlier, so that they can spend all their time in leisure, a fraction of which is used to undertake political activities whose aim is the capture of politicians.

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