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Repeated Games with Observation Costs

  • Casey B. Mulligan


    (University of Chicago)

  • Xavier Sala-i-Martin


    (Columbia University - Department of Economics)

We propose a positive theory that is consistent with two important features of social security programs around the world: (1) they redistribute income from young to old and (2) they induce retirement. We construct a voting model that includes a "political campaign" or "debate" prior to the election. The model incorporates "single-mindedness" of the groups that do not work: while the workers divide their political capital between their "age concerns" and "occupational concerns", the retired concentrate all their political capital to support their age group. In our model, the elderly end up getting transfers from the government (paid by the young) and distortionary labor income taxes induce the retirement of the elderly. In addition, our model predicts that occupational groups that work more will tend to have more political power. The opposite is true for non-occupational groups (such as the elderly). We provide some evidence that supports these additional predictions.

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Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0203-16.

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Length: 41 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:clu:wpaper:0203-16
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