Public Education and Pensions in Democracy: A Political Economy Theory

Francesco Lancia and Alessia Russo

No 01/2015, Memorandum from Oslo University, Department of Economics

Abstract: This paper presents a dynamic politico-economic theory of fiscal policy 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 can reproduce qualitative and quantitative features of intergenerational fiscal policies in modern economies.

Keywords: Intergenerational conflict; Markov perfect equilibrium; pension; public education; repeated voting; small open economy (search for similar items in EconPapers)
JEL-codes: D72 E62 H23 H30 H53 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2015-01-30
New Economics Papers: this item is included in nep-age, nep-cdm, nep-dge, nep-edu, nep-mac and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published as Lancia, Francesco and Alessia Russo, 'Public Education and Pensions in Democracy: A Political Economy Theory' in Journal of the European Economic Association, 2016, pages 35.

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Related works:
Journal Article: PUBLIC EDUCATION AND PENSIONS IN DEMOCRACY: A POLITICAL ECONOMY THEORY (2016)
Journal Article: Public Education and Pensions in Democracy: A Political Economy Theory (2016)
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