The Composition of Government Expenditure in an Overlapping Generations Model
This paper examines the choice of government expenditure on public goods and transfer payments (in the form of pension) under majority voting in an overlapping generations model, in which government expenditure is tax-?nanced on a pay-as-you-go (PAYG) basis. The condition required for majority support of the social contract involved in the PAYG scheme is established and shown to be independent of gov- ernment expenditure, so that the choice of expenditure composition can be made conditional on acceptance of this social contract. The model yields a closed-form solu-tion for the majority choice of the ratio of transfer payment to public goods, which depends negatively on the ratio of median to mean income, given parameters regarding preferences, tax, growth and interest rates. Informed by this result, a dataset for demo-cratic countries is examined, suggesting that income inequalities play a minor role in accounting for the substantial variations in the compostion of government expenditure across democratic countries, while di¤erent preferences for public goods resulting from cultural di¤erences may be an important determinant. Finally an alternative decision mechanism is also considered, in which a utilitarian government chooses expenditures to maximize a social welfare function. The solution is found to take a similar form to that of the majority voting context, except that a welfare-weighted average income replaces the median income.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +61 3 8344 5355
Fax: +61 3 8344 6899
Web page: http://www.economics.unimelb.edu.au
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tabellini, Guido & Alesina, Alberto, 1990.
"Voting on the Budget Deficit,"
4553030, Harvard University Department of Economics.
- Guido Tabellini & Alberto Alesina, 1988. "Voting on the Budget Deficit," UCLA Economics Working Papers 539, UCLA Department of Economics.
- Alberto Alesina & Guido Tabellini, 1988. "Voting on the Budget Deficit," NBER Working Papers 2759, National Bureau of Economic Research, Inc.
- Alesina, Alberto F & Tabellini, Guido, 1988. "Voting on the Budget Deficit," CEPR Discussion Papers 269, C.E.P.R. Discussion Papers.
- Hassler, John & Mora, Jose & Storesletten, Kjetil & Zilibotti, Fabrizio, 2002.
"The Survival of the Welfare State,"
704, Stockholm University, Institute for International Economic Studies.
- John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2001. "The survival of the welfare state," Economics Working Papers 603, Department of Economics and Business, Universitat Pompeu Fabra.
- Hassler, John & Mora, José V Rodríguez & Storesletten, Kjetil & Zilibotti, Fabrizio, 2001. "The Survival of the Welfare State," CEPR Discussion Papers 2905, C.E.P.R. Discussion Papers.
- Ghiglino, Christian & Tvede, Mich, 1998.
"Optimal policy in OG models,"
08-1998, Copenhagen Business School, Department of Economics.
- Grossmann, Volker, 2003.
"Income inequality, voting over the size of public consumption, and growth,"
European Journal of Political Economy,
Elsevier, vol. 19(2), pages 265-287, June.
- Volker Grossmann, 2002. "Income Inequality, Voting Over the Size of Public Consumption, and Growth," CESifo Working Paper Series 731, CESifo Group Munich.
- Bearse, Peter & Glomm, Gerhard & Janeba, Eckhard, 2001.
" Composition of Government Budget, Non-single Peakedness, and Majority Voting,"
Journal of Public Economic Theory,
Association for Public Economic Theory, vol. 3(4), pages 471-81.
- Bearse, P. & Glomm, G. & Jeneba, E., 1999. "Composition of Government Budget, Non-Single Peakedness and Majority Voting," Papers 9903, Michigan State - Econometrics and Economic Theory.
- Creedy, John & Moslehi, Solmaz, 2009.
"Modelling the composition of government expenditure in democracies,"
European Journal of Political Economy,
Elsevier, vol. 25(1), pages 42-55, March.
- John Creedy & Solmaz Moslehi, 2007. "Modelling the Composition of Government Expenditure in Democracies," Department of Economics - Working Papers Series 1007, The University of Melbourne.
- Creedy, J & Van de Ven, J, 1997.
"Retirement Incomes : Private Savings versus Social Transfers,"
Department of Economics - Working Papers Series
569, The University of Melbourne.
- Creedy, John & van de Ven, Justin, 2000. "Retirement Incomes: Private Savings versus Social Transfers," Manchester School, University of Manchester, vol. 68(5), pages 539-51, September.
- Marina Azzimonti & Eva de Francisco & Per Krusell, 2006. "Median-voter Equilibria in the Neoclassical Growth Model under Aggregation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 587-606, December.
- Grossman,G.M. & Helpman,E., 1996.
"Intergenerational Redistribution with Short-Lived Governements,"
2-96, Tel Aviv.
- Grossman, Gene M & Helpman, Elhanan, 1998. "Intergenerational Redistribution with Short-Lived Governments," Economic Journal, Royal Economic Society, vol. 108(450), pages 1299-1329, September.
- Gene M. Grossman & Elhanan Helpman, 1996. "Intergenerational Redistribution with Short-Lived Governments," NBER Working Papers 5447, National Bureau of Economic Research, Inc.
- Grossman, Gene & Helpman, Elhanan, 1996. "Intergenerational Redistribution with Short-lived Governments," CEPR Discussion Papers 1396, C.E.P.R. Discussion Papers.
- Grossman, G.M. & Helpman, E., 1996. "Intergenerational Redistribution with Short-Lived Governments," Papers 178, Princeton, Woodrow Wilson School - Public and International Affairs.
- Hassler, John & Storesletten, Kjetil & Zilibotti, Fabrizio, 2007.
"Democratic public good provision,"
Journal of Economic Theory,
Elsevier, vol. 133(1), pages 127-151, March.
- Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
- P R Agénor, 2005.
"Fiscal Policy and Endogenous Growth with Public Infrastructure,"
Centre for Growth and Business Cycle Research Discussion Paper Series
59, Economics, The Univeristy of Manchester.
- Pierre-Richard Agénor, 2008. "Fiscal policy and endogenous growth with public infrastructure," Oxford Economic Papers, Oxford University Press, vol. 60(1), pages 57-87, January.
- Pierre-Richard Agénor, 2005. "Fiscal Policy and Endogenous Growth with Public Infrastructure," The School of Economics Discussion Paper Series 0536, Economics, The University of Manchester.
- repec:cup:cbooks:9780521001151 is not listed on IDEAS
- repec:cup:cbooks:9780521894753 is not listed on IDEAS
- Borge, Lars-Erik & Rattso, J.Jorn, 2004. "Income distribution and tax structure: Empirical test of the Meltzer-Richard hypothesis," European Economic Review, Elsevier, vol. 48(4), pages 805-826, August.
- Rainald Borck, 2005.
"Voting, Inequality, and Redistribution,"
Discussion Papers of DIW Berlin
503, DIW Berlin, German Institute for Economic Research.
- Tridimas, George & Winer, Stanley L., 2005. "The political economy of government size," European Journal of Political Economy, Elsevier, vol. 21(3), pages 643-666, September.
- Thomas S. McCaleb, 1985. "Public Choice Perspectives on the Flat Tax Follies," Cato Journal, Cato Journal, Cato Institute, vol. 5(2), pages 613-628, Fall.
- Jose-Victor Rios-Rull & Per Krusell, 1999.
"On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model,"
American Economic Review,
American Economic Association, vol. 89(5), pages 1156-1181, December.
- Per Krusell & Jose-Victor Rios-Rull, 1997. "On the size of U.S. government: political economy in the neoclassical growth model," Staff Report 234, Federal Reserve Bank of Minneapolis.
- Been-Lon Chen, 2006. "Economic growth with an optimal public spending composition," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 123-136, January.
- Tridimas, George, 2001. " The Economics and Politics of the Structure of Public Expenditure," Public Choice, Springer, vol. 106(3-4), pages 299-316, March.
- repec:cup:cbooks:9780521806428 is not listed on IDEAS
- John Creedy & Solmaz Moslehi, 2007. "The Optimal Composition of Government Expenditure," Department of Economics - Working Papers Series 1008, The University of Melbourne.
- Hassler, John & Krusell, Per & Storesletten, Kjetil & Zilibotti, Fabrizio, 2005. "The dynamics of government," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1331-1358, October.
- Richard Disney, 2006. "Household Saving Rates and the Design of Public Pension Programmes: Crossâ€“Country Evidence," National Institute Economic Review, National Institute of Economic and Social Research, vol. 198(1), pages 61-74, October.
- Jo Thori Lind, 2005. "Why is there so little redistribution?," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 31, pages 111-125.
When requesting a correction, please mention this item's handle: RePEc:mlb:wpaper:1064. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Aminata Doumbia)
If references are entirely missing, you can add them using this form.