Transfers versus Public Investment: The Politics of Intergenerational Redistribution and Growth
AbstractIn this paper we analyze tax and transfer choices in an OLG economy with capital accumulation and endogenous growth coming from public investment, such as education. We solve for a Markov perfect equilibrium when electoral competition targets the votes of young and old households. We find that when calibrating the model to match US data, it predicts levels of intergenerational transfers and of public investments that are similar to the observed ones. Furthermore the Ramsey policy for the same parameters would call for both generations to be taxed to finance public investment. If the political process internalized the benefits that public investment has on future generations, growth would be twice as high as currently observed
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 712.
Date of creation: 03 Dec 2006
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
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endogenous growth; intergenerational transfers; education; probabilistic voting; Markov perfect equilibrium;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-13 (All new papers)
- NEP-DGE-2007-01-13 (Dynamic General Equilibrium)
- NEP-MAC-2007-01-13 (Macroeconomics)
- NEP-PBE-2007-01-13 (Public Economics)
- NEP-POL-2007-01-13 (Positive Political Economics)
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