The Dynamics of Inequality and Social Security in General Equilibrium

Zheng Song ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyzes the dynamic politico-economic equilibrium of a model where repeated voting on social security and the evolution of household characteristics in general equilibrium are mutually affected over time. In particular, we incorporate within-cohort heterogeneity in a two-period Overlapping-Generation model to capture the intra-generational redistributive effect of social security transfers. Political decision-making is represented by a probabilistic voting à la Lindbeck and Weibull (1987). We analytically characterize the Markov perfect equilibrium, in which social security tax rates are shown to be increasing in wealth inequality. The dynamic interaction between inequality and social security leads to growing social security programs. We also perform some normative analysis, showing that the politico-economic equilibrium outcomes are fundamentally different from the Ramsey allocation.

JEL-codes: E21 E62 H21 H55 (search for similar items in EconPapers)
Date: 2008-04-08
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: The Dynamics of Inequality and Social Security in General Equilibrium (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:10365

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