Solution Concept for Intergenerational Conflict: the Role of Intergenerational Bargaining
This paper specifically examines intergenerational conflict and analyzes an overlapping generations model of public goods provision from the viewpoint of time-consistency. Public goods are financed through labor-income and capital-income taxation, thereby distorting savings and the labor supply. Taxes redistribute income across generations in the form of public goods. Under such a situation, there emerge dual intergenerational conflicts: the first is related to the amount of public goods and the second is the tax burden. We then contrast the politico-economic equilibrium with commitment allocation, and analyze the sources of conflict and time-inconsistency, and attempt to resolve such a conflict by introducing the concept of eintergenerational bargaining f. Our main findings are the following. First, taxation derived using Lagrange method fails to be time-consistent. Second, depending on bargainingpower, taxation based on intergenerational bargaining can be time-consistent. Third, we portray the properties of taxation and public goods provision rules based on intergenerational bargaining.
|Date of creation:||Mar 2011|
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- Holtz-Eakin, Douglas & Lovely, Mary E. & Tosun, Mehmet S., 2004. "Generational conflict, fiscal policy, and economic growth," Journal of Macroeconomics, Elsevier, vol. 26(1), pages 1-23, March.
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