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Public Education And Pensions In Democracy: A Political Economy Theory

Listed author(s):
  • Francesco Lancia
  • Alessia Russo

This paper presents a dynamic politico-economic theory of fiscal policy to explain the simultaneous existence of public education and pensions in modern democracies. The driving force of the model is the intergenerational conflict over the allocation of the public budget. Successive generations of voters choose fiscal policies through repeated elections. The political power of elderly voters creates the motive for adults to support public investment in the human capital of future generations, since it expands future pension possibilities. We characterize the Markov perfect equilibrium of the voting game in a small open economy. The equilibrium can reproduce qualitative and quantitative features of intergenerational fiscal policies in modern economies.

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File URL: http://hdl.handle.net/10.1111/jeea.2016.14.issue-5
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Article provided by European Economic Association in its journal Journal of the European Economic Association.

Volume (Year): 14 (2016)
Issue (Month): 5 (October)
Pages: 1038-1073

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Handle: RePEc:bla:jeurec:v:14:y:2016:i:5:p:1038-1073
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  1. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, July.
  2. Rodrik, Dani, 2012. "The Globalization Paradox: Why Global Markets, States, and Democracy Can't Coexist," OUP Catalogue, Oxford University Press, number 9780199652525.
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