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Political Equilibria with Social Security

Author

Listed:
  • Michele Boldrin

    (University of Minnesota)

  • Aldo Rustichini

    (Boston University)

Abstract

We model PAYG social security systems as the outcome of majority voting within a OLG model with production. When voting, individuals make two choices: pay the elderly their pensions or default. which amount to promise themselves next period. Under general circumstances, there exist equilibria where pensions are voted into existence and maintained. Our analysis uncovers two reason for this. The traditional one relies on intergenerational trade and occurs at inefficient equilibria. A second reason relies on the monopoly power of the median voter. It occurs when a reduction in current savings induces a large enough increase in future return on capital to compensate for the negative effect of the tax. We characterize the steady state and dynamic properties of these equilibria and study their welfare properties. (Copyright: Elsevier)

Suggested Citation

  • Michele Boldrin & Aldo Rustichini, 2000. "Political Equilibria with Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 41-78, January.
  • Handle: RePEc:red:issued:v:3:y:2000:i:1:p:41-78
    DOI: 10.1006/redy.1999.0072
    as

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    References listed on IDEAS

    as
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    4. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 135-160, February.
    5. Boadway, Robin W & Wildasin, David E, 1989. "A Median Voter Model of Social Security," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 307-328, May.
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    More about this item

    Keywords

    overlapping generations; political economy; social security systems; taxation;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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