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A Dynamic Politico-Economic Model of Intergenerational contracts

Abstract

This paper proposes a dynamic politico-economic theory of intergenerational contracts, whose driving force is the intergenerational confict over government spending. Embedding a repeated probabilistic voting setup in a standard OLG model with human capital accumulation, we find that the empowerment of elderly constituencies is key in order to enforce productive policies. The paper characterizes the Markov-perfect equilibrium of the voting game, as well as the welfare properties. The main results are: (i) the existence of a Markov-perfect equilibrium which attains a growth- enhancing intergenerational contract does not require pre-commitment through the establishment of long-lasting institutions; (ii) the political sustainability of the intergenerational contract relies solely on the politico-economic fundamentals that are payoff-relevant for future constituents; (iii) the implementation of pork-barrel transfers does not necessarily crowd out productive public investment; and, (iv) the greater the degree of intergenerational con?icts over the government spending, the lower the ineffciency.

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Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 1304.

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Date of creation: Mar 2013
Handle: RePEc:vie:viennp:1304
Contact details of provider: Web page: http://www.univie.ac.at/vwl

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Find related papers by JEL classification:
  • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
  • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
  • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
  • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
  • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. A Dynamic Politico-Economic Model of Intergenerational Contracts
    by Christian Zimmermann in NEP-DGE blog on 2010-10-13 20:15:04
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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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.
  2. Tetsuo Ono, 2014. "Growth, Unemployment, and Fiscal Policy: A Political Economy Analysis," Discussion Papers in Economics and Business 14-30-Rev., Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Sep 2015.
  3. Tetsuo Ono, 2015. "Public education and social security: a political economy approach," Economics of Governance, Springer, vol. 16(1), pages 1-25, February.
  4. Bishnu, Monisankar & Wang, Min, 2017. "The political intergenerational welfare state," Journal of Economic Dynamics and Control, Elsevier, vol. 77(C), pages 93-110.
  5. Francesco Lancia & Alessia Russo, 2011. "Self-Commitment-Institutions and Cooperation in Overlapping Generations Games," Center for Economic Research (RECent) 073, University of Modena and Reggio E., Dept. of Economics "Marco Biagi".
  6. Soldatos, Gerasimos T., 2014. "Pork-Barrel Spending under Cournot Legislators and the Quantity Equation," MPRA Paper 61116, University Library of Munich, Germany.
  7. Pierre-Richard Agénor & Devrim Yilmaz, 2012. "Simple Dynamics of Public Debt with Productive Public Goods," Centre for Growth and Business Cycle Research Discussion Paper Series 165, Economics, The Univeristy of Manchester.
  8. Tetsuo Ono, 2014. "Economic Growth and the Politics of Intergenerational Redistribution," Discussion Papers in Economics and Business 14-17, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  9. Torben M. Andersen & Joydeep Bhattacharya, 2013. "The Intergenerational Welfare State," CESifo Working Paper Series 4359, CESifo Group Munich.

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