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Transfers versus Public Investment: The Politics of Intergenerational Redistribution and Growth

Author

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  • Martin Gonzalez-Eiras

    () (Universidad de San Andres)

  • Dirk Niepelt

Abstract

In this paper we analyze tax and transfer choices in an OLG economy with capital accumulation and endogenous growth coming from public investment, such as education. We solve for a Markov perfect equilibrium when electoral competition targets the votes of young and old households. We find that when calibrating the model to match US data, it predicts levels of intergenerational transfers and of public investments that are similar to the observed ones. Furthermore the Ramsey policy for the same parameters would call for both generations to be taxed to finance public investment. If the political process internalized the benefits that public investment has on future generations, growth would be twice as high as currently observed

Suggested Citation

  • Martin Gonzalez-Eiras & Dirk Niepelt, 2006. "Transfers versus Public Investment: The Politics of Intergenerational Redistribution and Growth," 2006 Meeting Papers 712, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:712
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    File URL: http://repec.org/sed2006/up.12007.1140036198.pdf
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    References listed on IDEAS

    as
    1. Janice Bell, 2001. "The Political Economy of Reform in Post-Communist Poland," Books, Edward Elgar Publishing, number 1810.
    2. Giorgio Bellettini & Carlotta Berti Ceroni, 1999. "Is Social Security Really Bad for Growth?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 796-819, October.
    3. Michele Boldrin & Ana Montes, 2005. "The Intergenerational State Education and Pensions," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 651-664.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    endogenous growth; intergenerational transfers; education; probabilistic voting; Markov perfect equilibrium;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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