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Intergenerational Redistribution with Short-Lived Governments / Gene M. Grossman, Elhanan Helpman.

By: Contributor(s): Material type: TextTextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w5447.Publication details: Cambridge, Mass. National Bureau of Economic Research 1996.Description: 1 online resource: illustrations (black and white)Subject(s): Online resources: Available additional physical forms:
  • Hardcopy version available to institutional subscribers
Abstract: We study the politics of intergenerational redistribution in an overlapping generations model with short-lived governments. The successive governmentsþwho care about the welfare of the currently living generations and possibly about campaign contributionsþare unable to pre-commit the future course of redistributive taxation. In a stationary politico-economic equilibrium, the tax rate in each period depends on the current value of the state variable and all expectations about future political outcomes are fulfilled. We find that there exist multiple stationary equilibria in many political settings. Steady-state welfare is often lower than it would be in the absence of redistributive politics.
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January 1996.

We study the politics of intergenerational redistribution in an overlapping generations model with short-lived governments. The successive governmentsþwho care about the welfare of the currently living generations and possibly about campaign contributionsþare unable to pre-commit the future course of redistributive taxation. In a stationary politico-economic equilibrium, the tax rate in each period depends on the current value of the state variable and all expectations about future political outcomes are fulfilled. We find that there exist multiple stationary equilibria in many political settings. Steady-state welfare is often lower than it would be in the absence of redistributive politics.

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