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Aging, Inequality and Social Security

Ryo Arawatari and Tetsuo Ono

No 08-19, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: This paper develops an overlapping-generations model including wage inequality within a generation and intra- and intergenerational resource reallocation via social security. Based on the concept of a stationary Markov perfect equilibrium, the paper focuses on the feedback mechanism between current individuals f decisions on saving and future voting on social security. The paper demonstrates the determination of social security via probabilistic voting and its consequence for consumption inequality within a generation. It is shown that when the elderly are politically powerful, (i) the economy attains an oscillatory path of inequality and social security, and (ii) aging may reduce consumption inequality.

Keywords: Aging; Inequality; Social security; Political Economy; Stationary Markov Perfect Equilibrium (search for similar items in EconPapers)
JEL-codes: D72 H55 J10 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2008-04
New Economics Papers: this item is included in nep-age, nep-dge, nep-lab, nep-pol and nep-pub
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