Working Paper: CEPR ID: DP1396
Authors: Gene M. Grossman; Elhanan Helpman
Abstract: We study the politics of intergenerational redistribution in an overlapping-generations model with short-lived governments. The successive governments ? who care about the welfare of the currently-living generations and possibly about campaign contributions ? are 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 state of the economy and all expectations about future political outcomes are fulfilled. We find that multiple stationary equilibria exist in many political settings. Steady-state welfare is often lower than it would be in the absence of redistributive politics.
Keywords: Generations; Redistribution
JEL Codes: E1; H1; H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| political behavior of governments (D72) | multiple stationary equilibria in tax and subsidy policies (H23) |
| expectation of successors' tax policies (H24) | current tax decisions (H29) |
| political contributions (D72) | government behavior (H10) |
| political expectations (D72) | economic outcomes (F61) |
| organized interest groups (D71) | policies favoring one generation (J78) |