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Intergenerational Redistribution with Short-Lived Governements

  • Grossman,G.M.
  • Helpman,E.

We study the politics of intergenerational redistribution in an overlapping-generations model with short-lived governements. The successive governements -who care about the welfare of the currently living generations and possibly about campaign contributions- are unable to pre-commit the future course of redistributive taxation. In a stationary politico-economic equilibrium, the tax rate in each period depends on the current state of the economy and all expectations about future political outcomes are fulfilled. We find that there exists multiple stationary equilibria in many political settings. Steady-state welfare is often lower than it would be in the absence of redistributive politics.

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Paper provided by Tel Aviv in its series Papers with number 2-96.

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Length: 41 pages
Date of creation: 1996
Date of revision:
Handle: RePEc:fth:teavfo:2-96
Contact details of provider: Postal: Israel TEL-AVIV UNIVERSITY, THE FOERDER INSTITUTE FOR ECONOMIC RESEARCH, RAMAT AVIV 69 978 TEL AVIV ISRAEL.
Phone: 972-3-640-9255
Fax: 972-3-640-5815
Web page: http://econ.tau.ac.il/foerder/about
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  1. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
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  10. Breyer, Friedrich, 1994. "The political economy of intergenerational redistribution," European Journal of Political Economy, Elsevier, vol. 10(1), pages 61-84, May.
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  15. Boadway, R.W. & Wildasin, D.E., 1987. "A median voter model of social security," CORE Discussion Papers 1987014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1997. "Politico-economic equilibrium and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 243-272, January.
  17. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  18. Leininger, Wolfgang, 1986. "The Existence of Perfect Equilibria in a Model of Growth with Altruism between Generations," Review of Economic Studies, Wiley Blackwell, vol. 53(3), pages 349-67, July.
  19. Tabellini, Guido, 1991. "The Politics of Intergenerational Redistribution," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 335-57, April.
  20. Dixit, Avinash K & Londregan, John, 1994. "The Determinants of Success of Special Interests in Redistributive Politics," CEPR Discussion Papers 1054, C.E.P.R. Discussion Papers.
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