IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

A Dynamic Politico-Economic Model of Intergenerational Contracts

  • Francesco Lancia

    (Catholic University of Milan)

This paper investigates the conditions for the emergence of implicit intergenerational contracts without assuming reputation mechanisms, commitment technology and altruism. We present a tractable dynamic politico-economic model in OLG environment where politicians play Markovian strategies in a probabilistic voting environment, setting multidimensional political agenda. Both backward and forward intergenerational transfers, respectively in the form of pension benefits and higher education investments, are simultaneously considered in an endogenous human capital setting with labor income taxation. On one hand, social security sustains investment in public education; on the other hand investment in education creates a dynamic linkage across periods through both human and physical capital driving the economy toward different Welfare State Regimes. Embedding a repeated-voting setup of electoral competition, we find that in a dynamic efficient economy both forward and backward intergenerational transfers simultaneously arise. The equilibrium allocation is education efficient, but, due to political overrepresentation of elderly agents, the electoral competition process induces overtaxation compared with a Benevolent Government solution with balanced welfare weights.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 248.

in new window

Date of creation: 2011
Date of revision:
Handle: RePEc:red:sed011:248
Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
Web page:

More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Marina Azzimonti, 2011. "Barriers to Investment in Polarized Societies," American Economic Review, American Economic Association, vol. 101(5), pages 2182-2204, August.
  2. Alesina, Alberto F & Rodrik, Dani, 1991. "Distributive Politics and Economic Growth," CEPR Discussion Papers 565, C.E.P.R. Discussion Papers.
  3. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  4. Kaganovich, M & Zilcha, I, 1997. "Education, Social Security and Growth," Papers 1-97, Tel Aviv.
  5. Gonzalez-Eiras, Martin & Niepelt, Dirk, 2012. "Ageing, government budgets, retirement, and growth," MPRA Paper 44218, University Library of Munich, Germany.
  6. Olivier de La Grandville & Rainer Klump, 2000. "Economic Growth and the Elasticity of Substitution: Two Theorems and Some Suggestions," American Economic Review, American Economic Association, vol. 90(1), pages 282-291, March.
  7. Conde-Ruiz, J.I. & Galasso, V., 2000. "Positive Arithmetic of the Welfare State," Economics Working Papers eco2000/23, European University Institute.
  8. Jorge Soares, Marina Azzimonti, Pierre-Daniel Sarte & Pierre-Daniel Sarte & Jorge Soares, 2006. "Distortionary Taxes and Public Investment When Government Promises Are Not Enforceable," Working Papers 06-07, University of Delaware, Department of Economics.
  9. Galasso, Vincenzo & Profeta, Paola, 2002. "The political economy of social security: a survey," European Journal of Political Economy, Elsevier, vol. 18(1), pages 1-29, March.
  10. Gonzalez-Eiras, Martin & Niepelt, Dirk, 2007. "The Future of Social Security," CEPR Discussion Papers 6245, C.E.P.R. Discussion Papers.
  11. Kehoe, Timothy J & Levine, David K, 2001. "Liquidity Constrained Markets versus Debt Constrained Markets," Econometrica, Econometric Society, vol. 69(3), pages 575-98, May.
  12. Guido Tabellini, 1989. "The Politics of Intergenerational Redistribution," NBER Working Papers 3058, National Bureau of Economic Research, Inc.
  13. Eric Maskin & Jean Tirole, 1997. "Markov Perfect Equilibrium, I: Observable Actions," Harvard Institute of Economic Research Working Papers 1799, Harvard - Institute of Economic Research.
  14. Lorenzo Forni, 2005. "Social Security as Markov Equilibrium in OLG Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 178-194, January.
  15. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  16. Docquier, Frederic & Paddison, Oliver & Pestieau, Pierre, 2007. "Optimal accumulation in an endogenous growth setting with human capital," Journal of Economic Theory, Elsevier, vol. 134(1), pages 361-378, May.
  17. Gene M. Grossman & Elhanan Helpman, 1996. "Intergenerational Redistribution with Short-Lived Governments," NBER Working Papers 5447, National Bureau of Economic Research, Inc.
  18. Alessandro Lizzeri & Nicola Persico, . ""The Provision of Public Goods Under Alternative Electoral Incentives''," CARESS Working Papres 98-08, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  19. Casey B. Mulligan & Xavier Sala-i-Martin, 1999. "Gerontocracy, Retirement, and Social Security," NBER Working Papers 7117, National Bureau of Economic Research, Inc.
  20. Paul Klein & Per Krusell & José-V�ctor R�os-Rull, 2008. "Time-Consistent Public Policy," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 789-808.
  21. Gary S. Becker & Nigel Tomes, 1994. "Human Capital and the Rise and Fall of Families," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 257-298 National Bureau of Economic Research, Inc.
  22. Battaglini, Marco & Coate, Stephen, 2005. "Inefficiency in Legislative Policy-Making: A Dynamic Analysis," Papers 08-09-2005, Princeton University, Research Program in Political Economy.
  23. Antonio Rangel, 2003. "Forward and Backward Intergenerational Goods: Why Is Social Security Good for the Environment?," American Economic Review, American Economic Association, vol. 93(3), pages 813-834, June.
  24. Razin, Assaf & Sadka, Efraim & Swagel, Phill, 2001. "The Aging Population and the Size of the Welfare State," CEPR Discussion Papers 2930, C.E.P.R. Discussion Papers.
  25. Giorgio Bellettini & Carlotta Berti Ceroni, 1995. "Is Social Security Really Bad For Growth?," Working Papers 218, Dipartimento Scienze Economiche, Universita' di Bologna.
  26. Hassler, John & Storesletten, Kjetil & Zilibotti, Fabrizio, 2003. "Democratic Public Good Provision," CEPR Discussion Papers 4044, C.E.P.R. Discussion Papers.
  27. Phillip Swagel & Efraim Sadka & Assaf Razin, 2002. "The Aging of the Population and the Size of the Welfare State," IMF Working Papers 02/68, International Monetary Fund.
  28. Azariadis, Costas & Galasso, Vincenzo, 2002. "Fiscal Constitutions," Journal of Economic Theory, Elsevier, vol. 103(2), pages 255-281, April.
  29. Assar Lindbeck & Jörgen Weibull, 1987. "Balanced-budget redistribution as the outcome of political competition," Public Choice, Springer, vol. 52(3), pages 273-297, January.
  30. repec:wop:bodewp:218 is not listed on IDEAS
  31. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  32. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1997. "Politico-economic equilibrium and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 243-272, January.
  33. Marco Bassetto, 1999. "Political economy of taxation in an overlapping-generations economy," Discussion Paper / Institute for Empirical Macroeconomics 133, Federal Reserve Bank of Minneapolis.
  34. Ehrlich, Isaac & Lui, Francis T, 1998. "Social Security, the Family, and Economic Growth," Economic Inquiry, Western Economic Association International, vol. 36(3), pages 390-409, July.
  35. 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.
  36. Boldrin, Michele & Montes, Ana, 2002. "The Intergenerational State: Education and Pensions," CEPR Discussion Papers 3275, C.E.P.R. Discussion Papers.
  37. Feldstein, Martin S, 1974. "Social Security, Induced Retirement, and Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 905-26, Sept./Oct.
  38. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1986. "Assessing Dynamic Efficiency: Theory and Evidence," NBER Working Papers 2097, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:red:sed011:248. 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: (Christian Zimmermann)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.