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Old-age Social Security vs. Forward Intergenerational Public Goods Provision

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Listed:
  • Ryo Arawatari

    () (Graduate School of Economics, Nagoya University)

  • Tetsuo Ono

    () (Graduate School of Economics, Osaka University)

Abstract

This paper introduces an overlapping-generations model with earnings hetero- geneity and borrowing constraints. The labor income tax and the allocation of tax revenue between social security and forward intergenerational public goods are determined in a bidimensional majoritarian voting game played by successive gen- erations. The political equilibrium is characterized by an ends-against-the-middle equilibrium where low- and high-income individuals form a coalition in favor of a lower tax rate and less social security while middle-income individuals favor a higher tax rate and greater social security. Government spending then shifts from social security to public goods provision if higher wage inequality is associated with the borrowing constraint and a high elasticity of marginal utility of youthful consump- tion.

Suggested Citation

  • Ryo Arawatari & Tetsuo Ono, 2011. "Old-age Social Security vs. Forward Intergenerational Public Goods Provision," Discussion Papers in Economics and Business 11-26-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Apr 2012.
  • Handle: RePEc:osk:wpaper:1126r
    as

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    References listed on IDEAS

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    Cited by:

    1. Ono, Tetsuo & Uchida, Yuki, 2016. "Pensions, education, and growth: A positive analysis," Journal of Macroeconomics, Elsevier, vol. 48(C), pages 127-143.

    More about this item

    Keywords

    Borrowing constraint; Old-age social security; Forward intergenera- tional public goods; Ends-against-the-middle equilibrium; Wage inequality;

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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