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Public Education and Pensions in Democracy: A Political Economy Theory

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Listed:
  • Francesco Lancia
  • Alessia Russo

Abstract

A dynamic political economy theory of fiscal policy is presented to explain the simultaneous existence of public education and pensions in modern democracies. The driving force of the model is the intergenerational conflict over the allocation of the public budget. Successive generations of voters choose fiscal policies through repeated elections. The political power of elderly voters creates the motive for adults to support public investment in the human capital of future generations since it expands future pension possibilities. We characterize the Markov perfect equilibrium of the voting game in a small open economy. The equilibrium reproduces salient features of intergenerational fiscal policies in modern economies.

Suggested Citation

  • Francesco Lancia & Alessia Russo, 2016. "Public Education and Pensions in Democracy: A Political Economy Theory," Journal of the European Economic Association, European Economic Association, vol. 14(5), pages 1038-1073.
    • Handle: RePEc:oup:jeurec:v:14:y:2016:i:5:p:1038-1073.
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    File URL: http://hdl.handle.net/10.1111/jeea.12170
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    References listed on IDEAS

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    1. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, April.
    2. Jeffrey S. Banks & John Duggan, 2005. "Probabilistic Voting in the Spatial Model of Elections: The Theory of Office-motivated Candidates," Studies in Choice and Welfare, in: David Austen-Smith & John Duggan (ed.), Social Choice and Strategic Decisions, pages 15-56, Springer.
    3. Rodrik, Dani, 2012. "The Globalization Paradox: Why Global Markets, States, and Democracy Can't Coexist," OUP Catalogue, Oxford University Press, number 9780199652525.
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    More about this item

    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; Modern Monetary Theory
    • 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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