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Some Inefficiency Implication of Generational Politics and Exchange

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  • Laurence J. Kotlikoff
  • Robert W. Rosenthal

Abstract

Generational selfishness is a central assumption in the vast literature on the life cycle model. Much of this literature deals with the impact of alternative government policies in light of self-interested generational behavior. Surprisingly, the choices of governments in virtually all of these analyses are assumed to be independent of the preferences of the selfish generations these governments presumably represent. We address this anomaly by modeling each generation as having a government that strictly represents the economy along a number of dimensions. We consider two types of inefficiencies that have received little or no attention in the literature. The first is the monopolization of factor supplies, and the second is the under- or overprovision of durable public goods. We demonstrate that selfish generations may place sizable marginal taxes on their factor supplies in order to monopolize their factor markets. We also show that selfish generations will provide inefficient levels of durable public goods both at the local and national levels. Finally, we demonstrate that generational inefficiencies can arise even in models of cooperative bargaining because of the first-mover advantage of earlier generations.

Suggested Citation

  • Laurence J. Kotlikoff & Robert W. Rosenthal, 1990. "Some Inefficiency Implication of Generational Politics and Exchange," NBER Working Papers 3354, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3354
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    References listed on IDEAS

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    Cited by:

    1. Martín Gonzalez-Eiras & Dirk Niepelt, 2016. "Fiscal Federalism, Taxation and Grants," Working Papers 16.05, Swiss National Bank, Study Center Gerzensee.
    2. John P. Conley & Robert Driskill & Ping Wang, 2019. "Capitalization, decentralization, and intergenerational spillovers in a Tiebout economy with a durable public good," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(1), pages 1-27, February.
    3. Jäger, Philipp & Schmidt, Torsten, 2016. "The political economy of public investment when population is aging: A panel cointegration analysis," European Journal of Political Economy, Elsevier, vol. 43(C), pages 145-158.
    4. Gonzales-Eiras, Martín & Niepelt, Dirk, 2004. "Sustaining Social Security," Seminar Papers 731, Stockholm University, Institute for International Economic Studies.
    5. Antonio Rangel, 1999. "Forward and Backward Intergenerational Goods: A Theory of Intergenerational Exchange," Working Papers 00001, Stanford University, Department of Economics.
    6. Antonio Rangel, 2002. "How to Protect Future Generations Using Tax Base Restrictions," NBER Working Papers 9179, National Bureau of Economic Research, Inc.
    7. Antonio Rangel, 2005. "How to Protect Future Generations Using Tax-Base Restrictions," American Economic Review, American Economic Association, vol. 95(1), pages 314-346, March.
    8. Gonzalez-Eiras, Martín & Niepelt, Dirk, 2020. "Dynamic tax externalities and the U.S. fiscal transformation," Journal of Monetary Economics, Elsevier, vol. 114(C), pages 144-158.
    9. M. Magnani, 2005. "Labour market regulation and retirement age," Economics Department Working Papers 2005-EP02, Department of Economics, Parma University (Italy).
    10. Cellarier, Laurent L., 2013. "A family production overlapping generations economy," Journal of Economic Dynamics and Control, Elsevier, vol. 37(11), pages 2168-2179.
    11. Glazer, Amihai & Kanniainen, Vesa & Niskanen, Esko, 2003. "Bequests, control rights, and cost-benefit analysis," European Journal of Political Economy, Elsevier, vol. 19(1), pages 71-82, March.
    12. Arnaud Goussebaïle, 2022. "Democratic Climate Policies with Overlapping Generations," CER-ETH Economics working paper series 22/374, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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