The political economy of a changing population
AbstractIn the context of an overlapping generations model with intragenerational inequality and majority voting, I study how the taxation of the old and retired generation is affected when the population growth rate changes. A fall in the birth rate leads to two opposite effects. On the one hand, the old generation acquires more political power because their relative size in the voting population increases. This exerts downward pressure on the taxation of the old. On the other hand, the tax burden on the young (used to repay the public debt held by the old) increases, so that their support for a low tax rate on assets held by the old decreases. In general, the number of equilibria is either zero or two, one of which involves zero taxation while the other involves partial taxation of the assets held by the old.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1995-11.
Date of creation: 1995
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Macroeconomic Models; Taxation; Population Dynamics; Voting; Ageing; macroeconomics;
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- Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-61, September.
- Tabellini, Guido, 1991.
"The Politics of Intergenerational Redistribution,"
Journal of Political Economy,
University of Chicago Press, vol. 99(2), pages 335-57, April.
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