Working Paper: CEPR ID: DP4044
Authors: John Hassler; Kjetil Storesletten; Fabrizio Zilibotti
Abstract: This Paper analyses an overlapping generation model of public good provision under repeated voting. The public good is financed through age-dependent taxation that distorts human capital investment. Taxes redistribute income both across different skill groups and across generations. We contrast the political equilibria with the Ramsey allocation, and analyse the sources of inefficiency. The political equilibria can feature both under- and over-provision of public good, as well an inefficient life-cycle profile of taxes.
Keywords: Markov Equilibrium; Multiple Equilibria; Political Economy; Public Good; Ramsey Allocation; Taxation
JEL Codes: D72; D78; E62; H21; H41; H53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| political decision-making process (D72) | level of public good provision (H42) |
| political choices made in one period (D72) | future distributions and voting outcomes (D72) |
| current taxation decisions (H29) | future political outcomes (D72) |
| biases in tax burden distribution (H22) | human capital investment (J24) |
| political system's structure (H11) | equilibrium outcomes (D51) |