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Old-age Social Security vs. Forward Intergenerational Public Goods Provision

Ryo Arawatari and Tetsuo Ono ()

No 11-26, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: This paper introduces an overlapping-generations model with earnings hetero- geneity and borrowing constraints. The labor income tax and the allocation of tax revenue across social security and forward intergenerational public goods are determined in a bidimensional majoritarian voting game played by successive gen- erations. The political equilibrium is characterized by an ends-against-the-middle equilibrium where low- and high-income individuals form a coalition in favor of a low tax rate and less social security while middle-income individuals favor a high tax rate and greater social security. Government spending then shifts from social security to public goods provision if higher wage inequality is associated with the borrowing constraint and a low interest-rate elasticity of consumption.

Keywords: Borrowing constraint; Old-age social security; Forward intergenera- tional public goods; Ends-against-the-middle equilibrium; Wage inequality (search for similar items in EconPapers)
JEL-codes: H41 H55 D72 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-dge, nep-pbe and nep-pub
Date: 2011-08
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Working Paper: Old-age Social Security vs. Forward Intergenerational Public Goods Provision (2013) Downloads
Working Paper: Old-age Social Security vs. Forward Intergenerational Public Goods Provision (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:1126

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