Working Paper: NBER ID: w3058
Authors: Guido Tabellini
Abstract: This paper studies the political-economic equilibrium of a two-period model with overlapping generations. In each period the policy is chosen under majority rule by the generations currently alive. The paper identifies a "sustainable set" of values for public debt. Any amount of debt within this set is fully repaid in equilibrium, even in the absence of commitments. By issuing debt within this set, the first generation of voters redistributes revenue in its favor and away from the second generation. The paper characterizes the determinants of the equilibrium intergenerational redistribution carried out in this way, and points to a difference between debt policy and social security legislation as instruments of redistribution. The key features of the model are heterogeneity within each generation and altruism across generations.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| first generation's decision to issue public debt (H60) | intergenerational welfare (I38) |
| public debt issuance (H63) | benefits for first generation (H55) |
| public debt issuance (H63) | costs for second generation (H60) |
| public debt policy (H63) | intergenerational redistribution (H23) |
| public debt within sustainable set (H63) | full repayment in equilibrium (D53) |