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On the Political Economy of Social Security and Public Education

  • Poutvaara, Panu

    ()

    (University of Munich)

This paper analyzes simultaneous voting on the wage tax rate and investment in public education with three overlapping generations and productivity differences inside each cohort. Wage tax revenue finances public education and social security benefits. The presence of productivity differences introduces a time-consistency problem with repeated voting. This can be solved by trigger strategies which do not punish upward deviations in the wage tax rate. If there are multiple equilibria, then higher tax rates are associated with more education. Surprisingly, the median voter may be a young citizen even when cohorts are of the same size.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1408.

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Length: 21 pages
Date of creation: Nov 2004
Date of revision:
Publication status: published in: Journal of Population Economics, 2006, 19 (2), 345-365
Handle: RePEc:iza:izadps:dp1408
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