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The Political intergenerational welfare state: A Unified framework

  • Monisankar Bishnu


    (Indian Statistical Institute, New Delhi)

  • Min Wang


    (Peking University)

We provide a complete characterization of intergenerational welfare state with education and pension under probabilistic voting where voters internalize the general equilibrium effects materializing in their life-span. We show that as public education is introduced in the economy through the political process of voting, it always increases (reduces) the accumulation of human capital (physical capital), but strikingly, has no effect on the political equilibrium of PAYG social security tax. On the other hand, the introduction of a politically determined PAYG social security most defnitely reduces physical capital accumulation, however it will reduce the human capital accumulation if only if the public education is already present in the economy. Otherwise, it may lead to an increase in the human capital accumulation. We also demonstrate that the general equilibrium effects are crucial to sustain the social security program, and explain why the presence of PAYG social security may not provide su› cient incentive for public investment in education. Finally, we show that the simultaneous arrangement of public education and pension can increase the long-run growth if and only if the relative political weight of the old is small so that the pension program is thin, which makes the result of Boldrin and Montes (2005) study conditional on the intergenerational distribution of voting power in our political economy setup.

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Paper provided by Indian Statistical Institute, New Delhi, India in its series Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers with number 13-08.

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Length: 35 pages
Date of creation: May 2013
Date of revision:
Handle: RePEc:ind:isipdp:13-08
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  1. Panu Poutvaara, 2001. "On the Political Economy of Social Security and Public Education," CESifo Working Paper Series 424, CESifo Group Munich.
  2. Junsen Zhang & Junxi Zhang, 1998. "Social Security, Intergenerational Transfers, and Endogenous Growth," Canadian Journal of Economics, Canadian Economics Association, vol. 31(5), pages 1225-1241, November.
  3. Michele Boldrin & Ana Montes, 2004. "The intergenerational state: education and pensions," Staff Report 336, Federal Reserve Bank of Minneapolis.
  4. Assar Lindbeck & Jörgen Weibull, 1987. "Balanced-budget redistribution as the outcome of political competition," Public Choice, Springer, vol. 52(3), pages 273-297, January.
  5. Tabellini, Guido, 2000. " A Positive Theory of Social Security," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 523-45, June.
  6. Zheng Song & Kjetil Storesletten & Fabrizio Zilibotti, 2007. "Rotten Parents and Disciplined Children: A Politico-Economic Theory of Public Expenditure and Debt," 2007 Meeting Papers 685, Society for Economic Dynamics.
  7. Samuel Preston, 1984. "Children and the elderly: Divergent paths for America’s dependents," Demography, Springer, vol. 21(4), pages 435-457, November.
  8. Martin Feldstein, 2005. "Structural Reform of Social Security," NBER Working Papers 11098, National Bureau of Economic Research, Inc.
  9. Frederic, DOCQUIER & Oliver, Paddison & Pierre PESTIEAU, 2006. "Optimal accumulation in an endogenous growth setting with human capital," Discussion Papers (ECON - Département des Sciences Economiques) 2006022, Université catholique de Louvain, Département des Sciences Economiques.
  10. Jorge Soares, 2005. "A Dynamic General Equilibrium Analysis of the Political Economy of Public Education," Working Papers 05-05, University of Delaware, Department of Economics.
  11. Cremer, H. & Kessler, D. & Pestieau, P., 1989. "Intergenerational Transfers Within The Family," CORE Discussion Papers 1989018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Feldstein, Martin, 2005. "Structural Reform of Social Security," Scholarly Articles 2794830, Harvard University Department of Economics.
  13. repec:cor:louvrp:-1676 is not listed on IDEAS
  14. Glomm, Gerhard & Kaganovich, Michael, 2008. "Social security, public education and the growth-inequality relationship," European Economic Review, Elsevier, vol. 52(6), pages 1009-1034, August.
  15. Gary S. Becker & Kevin M. Murphy, . "The Family and the State," University of Chicago - Population Research Center 87-15, Chicago - Population Research Center.
  16. DE LA CROIX, David & DOEPKE, Matthias, 2001. "Inequality and Growth : Why Differential Fertility Matters," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2001008, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  17. Song, Zheng, 2008. "The Dynamics of Inequality and Social Security in General Equilibrium," MPRA Paper 10365, University Library of Munich, Germany.
  18. Naito, Katsuyuki, 2010. "Two-sided Intergenerational Transfer Policy and Economic Development: A Politico-economic Approach," MPRA Paper 21020, University Library of Munich, Germany.
  19. Lindert Peter H., 1994. "The Rise of Social Spending, 1880-1930," Explorations in Economic History, Elsevier, vol. 31(1), pages 1-37, January.
  20. Kaganovich, Michael & Zilcha, Itzhak, 1999. "Education, social security, and growth," Journal of Public Economics, Elsevier, vol. 71(2), pages 289-309, February.
  21. Monisankar Bishnu, 2011. "Linking consumption externalities with optimal accumulation of human and physical capital and intergenerational transfers," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 11-01, Indian Statistical Institute, New Delhi, India.
  22. Pecchenino, R.A., 1994. "Social Security, Social Welfare and the Aging Population," Papers 9403, Michigan State - Econometrics and Economic Theory.
  23. 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.
  24. Naito, Katsuyuki, 2012. "Two-sided intergenerational transfer policy and economic development: A politico-economic approach," Journal of Economic Dynamics and Control, Elsevier, vol. 36(9), pages 1340-1348.
  25. Antonio Rangel, 2003. "Forward and Backward Intergenerational Goods: Why Is Social Security Good for the Environment?," American Economic Review, American Economic Association, vol. 93(3), pages 813-834, June.
  26. 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.
  27. Kaganovich, Michael & Zilcha, Itzhak, 2012. "Pay-as-you-go or funded social security? A general equilibrium comparison," Journal of Economic Dynamics and Control, Elsevier, vol. 36(4), pages 455-467.
  28. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-34, August.
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