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Intergenerational Politics, Fiscal Policy and Productivity

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  • Kenneth R. Beauchemin

    (Department of Econonomics, University of Colorado, Boulder)

Abstract

A political-economic theory of fiscal policy is presented in which tax policy preferences are derived from a conflict of interest between individuals of different ages. Policy formation is fully rational in that an individual's beliefs regarding future policies are consistent with state-contingent policy outcomes. The overlapping generations friction that prevents the young from transacting with future members of society implies that young policymakers strategically manipulate the policy preferences of the yet unborn to lower their own expected old-age tax burden. A comparison of the original equilibrium to one induced by the "constitutional commitment" of fiscal policy isolates the strategic component of tax rates and demonstrates that aggregate labor productivity is biased as a result of the conflict. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.1998.0031
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 1 (1998)
Issue (Month): 4 (October)
Pages: 835-858

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Handle: RePEc:red:issued:v:1:y:1998:i:4:p:835-858

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  1. Robert J. Barro, 1991. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  2. Krusell, P. & Rios-Rull, J.V., 1993. "Vested Interests in a Positive Theory of Stagnation and Growth," Papers 547, Stockholm - International Economic Studies.
  3. James M. Poterba, 1996. "Demographic Structure and the Political Economy of Public Education," NBER Working Papers 5677, National Bureau of Economic Research, Inc.
  4. Barro, R.J. & Becker, G.S., 1988. "Fertility Choice In A Model Of Economic Growth," University of Chicago - Economics Research Center 88-8, Chicago - Economics Research Center.
  5. Alesina, Alberto & Tabellini, Guido, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 403-14, July.
  6. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
  7. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Wiley Blackwell, vol. 37(3), pages 353-60, July.
  8. Glomm, Gerhard & Ravikumar, B., 1999. "Competitive equilibrium and public investment plans," Journal of Economic Dynamics and Control, Elsevier, vol. 23(8), pages 1207-1224, August.
  9. Bernheim, B. Douglas & Ray, Debraj, 1989. "Markov perfect equilibria in altruistic growth economies with production uncertainty," Journal of Economic Theory, Elsevier, vol. 47(1), pages 195-202, February.
  10. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
  11. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-34, August.
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Cited by:
  1. Xavier Mateos-Planas, 2010. "Demographics and the Politics of Capital Taxation in a Life-Cycle Economy," American Economic Review, American Economic Association, vol. 100(1), pages 337-63, March.
  2. Jukka Lassila, 2000. "Wage formation by majority voting and the incentive effects of pensions and taxation," Finnish Economic Papers, Finnish Economic Association, vol. 13(2), pages 89-115, Autumn.
  3. Mateos-Planas, Xavier, 2008. "A quantitative theory of social security without commitment," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 652-671, April.

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