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Old-age Social Security vs. Forward Intergenerational Public Goods Provision

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  • Ryo Arawatari

    ()
    (Graduate School of Economics, Nagoya University)

  • Tetsuo Ono

    ()
    (Graduate School of Economics, Osaka University)

Abstract

This paper introduces an overlapping-generations model with earnings hetero- geneity and borrowing constraints. The labor income tax and the allocation of tax revenue between social security and forward intergenerational public goods are determined in a bidimensional majoritarian voting game played by successive gen- erations. The political equilibrium is characterized by an ends-against-the-middle equilibrium where low- and high-income individuals form a coalition in favor of a lower tax rate and less social security while middle-income individuals favor a higher tax rate and greater social security. Government spending then shifts from social security to public goods provision if higher wage inequality is associated with the borrowing constraint and a high elasticity of marginal utility of youthful consump- tion.

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Bibliographic Info

Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 11-26-Rev.

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Length: 46 pages
Date of creation: Aug 2011
Date of revision: Apr 2012
Handle: RePEc:osk:wpaper:1126r

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Web page: http://www.econ.osaka-u.ac.jp/
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Related research

Keywords: Borrowing constraint; Old-age social security; Forward intergenera- tional public goods; Ends-against-the-middle equilibrium; Wage inequality;

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