Lancia, Francesco and Russo, Alessia (2010): A Dynamic Politico-Economic Model of Intergenerational Contracts.
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This paper investigates the conditions for the emergence of implicit intergenerational contracts without assuming reputation mechanisms, commitment technology and altruism. We present a tractable dynamic politico-economic model in OLG environment where politicians play Markovian strategies in a probabilistic voting environment, setting multidimensional political agenda. Both backward and forward intergenerational transfers, respectively in the form of pension benefits and higher education investments, are simultaneously considered in an endogenous human capital setting with labor income taxation. On the one hand, social security sustains investment in public education; on the other hand investment in education creates a dynamic linkage across periods through both human and physical capital driving the economy toward different Welfare State Regimes. Embedding a repeated-voting setup of electoral competition, we find that in a dynamic efficient economy both forward and backward intergenerational transfers simultaneously arise. The equilibrium allocation is education efficient, but, due to political overrepresentation of elderly agents, the electoral competition process induces overtaxation compared with a Benevolent Government solution with balanced welfare weights.
|Item Type:||MPRA Paper|
|Original Title:||A Dynamic Politico-Economic Model of Intergenerational Contracts|
|Keywords:||aging, Benevolent Government allocation, intergenerational redistribution, Markovian equilibria, repeated voting.|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy
D - Microeconomics > D7 - Analysis of Collective Decision-Making > D71 - Social Choice; Clubs; Committees; Associations
H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C61 - Optimization Techniques; Programming Models; Dynamic Analysis
|Depositing User:||Francesco Lancia|
|Date Deposited:||06. Sep 2010 00:21|
|Last Modified:||15. Feb 2013 21:38|
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