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Transfers versus Public Investment: The Politics of Intergenerational Redistribution and Growth

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Author Info
Martin Gonzalez-Eiras () (Universidad de San Andres)
Dirk Niepelt

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Abstract

In this paper we analyze tax and transfer choices in an OLG economy with capital accumulation and endogenous growth coming from public investment, such as education. We solve for a Markov perfect equilibrium when electoral competition targets the votes of young and old households. We find that when calibrating the model to match US data, it predicts levels of intergenerational transfers and of public investments that are similar to the observed ones. Furthermore the Ramsey policy for the same parameters would call for both generations to be taxed to finance public investment. If the political process internalized the benefits that public investment has on future generations, growth would be twice as high as currently observed

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File URL: http://repec.org/sed2006/up.12007.1140036198.pdf
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Publisher Info
Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 712.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:712

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Related research
Keywords: endogenous growth intergenerational transfers education probabilistic voting Markov perfect equilibrium

Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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This page was last updated on 2008-11-20.

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