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.:
- Bearse, P. & Glomm, G. & Jeneba, E., 1999.
"Composition of Government Budget, Non-Single Peakedness and Majority Voting,"
9903, Michigan State - Econometrics and Economic Theory.
- 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.
- 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.
- Hassler, John & Mora, Jose & Storesletten, Kjetil & Zilibotti, Fabrizio, 2002. "The Survival of the Welfare State," Seminar Papers 704, Stockholm University, Institute for International Economic Studies.
- Tabellini, Guido & Alesina, Alberto, 1990.
"Voting on the Budget Deficit,"
4553030, Harvard University Department of Economics.
- Alesina, Alberto F & Tabellini, Guido, 1988. "Voting on the Budget Deficit," CEPR Discussion Papers 269, C.E.P.R. Discussion Papers.
- 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.
- 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.
- Tridimas, George, 2001. " The Economics and Politics of the Structure of Public Expenditure," Public Choice, Springer, vol. 106(3-4), pages 299-316, March.
- Hassler, John & Storesletten, Kjetil & Zilibotti, Fabrizio, 2007.
"Democratic public good provision,"
Journal of Economic Theory,
Elsevier, vol. 133(1), pages 127-151, March.
- 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.
- Christian Ghiglino & Mich Tvede, 1999.
"Optimal Policy in OG Models,"
99-23, University of Copenhagen. Department of Economics.
- repec:cup:cbooks:9780521001151 is not listed on IDEAS
- Gene M. Grossman & Elhanan Helpman, 1996.
"Intergenerational Redistribution with Short-Lived Governments,"
NBER Working Papers
5447, National Bureau of Economic Research, Inc.
- Grossman, Gene M & Helpman, Elhanan, 1998. "Intergenerational Redistribution with Short-Lived Governments," Economic Journal, Royal Economic Society, vol. 108(450), pages 1299-1329, September.
- 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.
- Grossman,G.M. & Helpman,E., 1996. "Intergenerational Redistribution with Short-Lived Governements," Papers 2-96, Tel Aviv.
- Creedy, John & van de Ven, Justin, 2000.
"Retirement Incomes: Private Savings versus Social Transfers,"
University of Manchester, vol. 68(5), pages 539-51, September.
- 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.
- 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.
- Rainald Borck, 2005.
"Voting, Inequality, and Redistribution,"
Discussion Papers of DIW Berlin
503, DIW Berlin, German Institute for Economic Research.
- 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.
- 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.
- 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.
- John Creedy & Solmaz Moslehi, 2007. "The Optimal Composition of Government Expenditure," Department of Economics - Working Papers Series 1008, The University of Melbourne.
- 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.
- 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, 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.
- 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.
- 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.
- repec:cup:cbooks:9780521894753 is not listed on IDEAS
- 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.
- 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.
- repec:cup:cbooks:9780521806428 is not listed on IDEAS
- 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.
- 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.
- 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.
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.