Democratic public good provision

John Hassler, Kjetil Storesletten, Fabrizio Zilibotti

Research output: Contribution to journalArticlepeer-review

32 Scopus citations

Abstract

This paper analyzes an overlapping generation model of redistribution and public good provision under repeated voting. Expenditures are financed through age-dependent taxation that distorts human capital investment. Taxes redistribute income both across skill groups and across generations. We focus on politico-economic Markov equilibria and contrast these with the Ramsey allocation under commitment. The model features indeterminate equilibria, with a key role of forward-looking strategic voting. Due to the lack of commitment to future policies, the tax burden may be on the wrong side of the dynamic Laffer curve. Moreover, restrictions on government policies can in some cases be welfare improving.

Original languageEnglish (US)
Pages (from-to)127-151
Number of pages25
JournalJournal of Economic Theory
Volume133
Issue number1
DOIs
StatePublished - Mar 2007
Externally publishedYes

Keywords

  • Markov equilibrium
  • Multiple equilibria
  • Political economy
  • Public good
  • Ramsey taxation
  • Redistribution
  • Repeated voting

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